UPDATE 2-Manulife Financial surprises with dividend hike as profit triples

Thu Aug 7, 2014 9:25am EDT

(Adds analyst, CFO comments, background)

By Cameron French

TORONTO Aug 7 (Reuters) - Manulife Financial Corp unexpectedly hiked its dividend for the first time since the financial crisis on Thursday, as it reported quarterly profits that jumped on stronger financial markets but was just shy of analysts' expectations.

Investors have awaited an improved dividend since Canada's largest insurer halved the payout in 2009 as it struggled to preserve capital amid plunging markets and unprofitable products.

The company had hinted that a dividend hike was possible in 2015 at the earliest.

"We believe that this is a distinct positive and may come somewhat of a surprise to the market," Barclays Capital analyst John Aiken said in the note.

In an interview, Manulife Chief Financial Officer Steve Roder said the company decided to hike the dividend early due largely to a faster-than-expected decline in the company's leverage ratio, and growing comfort with the regulatory environment, including capital rules for insurers.

Net income attributed to shareholders was C$943 million, or 49 Canadian cents a share, compared with C$259 million, or 12 Canadian cents a share, a year earlier.

The result benefited from C$267 million in investment-related gains, due to strong returns on alternative long-duration assets and the redeployment of government securities into higher-yielding assets, and also from higher fee income on increased assets under management, the company said.

Excluding one-time items and the bulk of the market-related gains, Manulife earned 36 Canadian cents per share, just shy of analysts' estimates of 40 Canadian cents, according to Thomson Reuters I/B/E/S.

Besides its Canadian operations, Manulife owns U.S. insurer John Hancock and is growing in Asia, where it has a presence in about a dozen countries.

The dividend move follows efforts in recent years to reduce Manulife's exposure to financial markets through hedging and the exit of unprofitable business lines.

The company also has a goal of reaching C$4 billion in core profit, which excludes market-related impacts, by 2016. Core profit was C$1.4 billion in the first half of 2014.

"As we move closer to the C$4 billion (target), we would hope to have incremental step-ups in the dividend," Roder said.

Total insurance sales fell 38 percent on the year, due to a strong performance a year earlier in single premium group benefits sales. Excluding group benefits, insurance sales rose 10 percent, the company said.

Wealth management sales were down 7 percent on the year, in part due to the non-recurrence of a closed end fund offering in Canada, though funds under management rose 12 percent.

The company's shares, which are up about 5 percent year-to-date, closed at C$21.97 on Wednesday.

The result follows a stronger-than-expected profit at rival Sun Life Financial late on Wednesday. (Editing by Lisa Von Ahn and Bernadette Baum)