Canada's top insurance companies seem to have gotten into a bit of a spat over their dividends.
Sun Life Financial Inc.'s president Dean Connor told an investor conference yesterday that the insurer will maintain its dividend - likely a welcome relief to investors who saw rival Manulife Financial Corp. slash its own quarterly dividend recently.
"Our capital levels are strong, our capital sensitivities to market levels are low and we maintain significant cash on hand," Sun Life's Mr. Connor said.
But no sooner had Mr. Connor uttered these reassuring words than Manulife's chief executive officer Donald Guloien - the man who took a hatchet to the insurer's dividend in early August, cutting it in half in a move that shocked markets - shot back that maintaining a dividend may not be such a great idea in this market.
"I think the high payout ratios companies exhibit - unless they have a truly low-risk business - are not wise going forward in the financial services industry," he said.
He was alluding to the fact that some companies have been paying out more in dividends over the past year than they have been taking in as earnings per share, due to plummeting profits. After Manulife cut its dividend, whether or not other companies would follow suit became an open question.
Still, this sort of exchange seems highly unusual to say the least.
Despite all the fretting over dividends over the past year, and widespread cuts among financial services firms in the United States, we haven't ever heard a CEO suggest to others that a dividend cut might be in order.
It's hard to know who's right on this issue. In yesterday's trading, investors seemed to be siding with Mr. Guloien's view that lower payout ratios are more important than maintaining a dividend: Manulife shares closed up 2.3 per cent, while Sun Life rose 1 per cent.
However, Mr. Guloien's helpful advice didn't send investors fleeing other dividend-paying stocks in the financial sector.
Bank of Montreal, once seen as the most likely of the Canadian banks to cut its dividend, actually rose 1 per cent.
Perhaps Mr. Guloien was merely expressing frustration over the treatment of Manulife's stock over the longer term.
Over the past 12 months, Manulife shares have lagged Sun Life's by an amazing 24.8 percentage points, after dividends are taken into account. (Full disclosure: I own shares in Manulife.) They have also lagged the S&P/TSX financials index by 40 percentage points.
See David Berman's Market Blog at the new Globeinvestor.com
With a file from Canadian Press
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