Sun Life: A Rare Opportunity to Buy The Dip

As y’all probably know by now, your author is a big fan of buying good companies when they’re facing very temporary problems.

The logic is simple. I believe the market overreacts all the time, especially when an issue comes out of left field. Investors hate surprises and they hate uncertainty even more, and so when something combines the two of those things the stock will sell off — and often in a big way, too.

This is the perfect opportunity to buy. It allows an investor to buy at a lower valuation. It also maximizes dividend income. If a stock is 10% lower than last week but the yield is the same, anyone buying will get themselves 10% higher income than before.

And if the stock continues to fall, that’s okay. Subsequent purchases can be made that further goose income. It’s not such a bad scenario for a long-term dividend investor.

Let’s take a closer look at a stock I believe is suffering from some temporary headwinds today — Sun Life Financial (TSX:SLF).

Introduction

Sun Life Financial is one of North America's oldest financial services companies. 

The company was given permission to go ahead in 1865, but unfavorable economic conditions delayed those plans. It eventually started in 1871, operating first in the Quebec market. It slowly expanded from there and by the 1920s the company was operating in 55 different countries. 

In 1982, the company made a big foray into the U.S. market by purchasing Massachusetts Financial Services. The Boston-based company's claim to fame was it invented the mutual fund in 1924. 

These days, Sun Life is a diversified financial services giant with operations across the world. It sells insurance, investments, financial advice, and asset management services to millions of clients in Canada, the United States, and, increasingly, Asia. It also has operations in Europe, South America, and Australia.

It has more than 85M clients around the world with more than 66,000 employees and some 95,000 advisors selling various Sun Life products. It has more than $1.5T in assets under management with offices in 28 different markets. Put simply, it is a financial services behemoth.

The company's four pillars include asset management, and then its operations in Canada, the United States, and Asia. 

It is divided into three different divisions. The largest is the asset management and wealth division, which accounts for 42% of total company business. Its group insurance division is next, checking in at 30%. And the company's individual protection plans bring up the rear, at 28%.

Sun Life has been really focusing on growth in Asia over the last decade or so, and it has made serious inroads in the area. The insurance industry is growing significantly in the region as individuals get wealthier and they have assets to protect. The company has also partnered with regional banks to get its products in front of as many potential clients as possible. 

Operations are particularly strong in Hong Kong, India, and the Philippines. Although Sun Life is only a dominant player in a few different Asian markets, it's experiencing strong growth in pretty much the entire region as the proverbial rising tide lifts all boats. 

It's been a winning formula. Sun Life posted a five-year annualized total return of 17.4% through June 30th, 2025. Although this lagged its insurance peers in Canada and the United States, the company did beat its global peers. Besides, a 17% annualized return is a pretty solid result. Imagine being unhappy with it.

Unfortunately, recent results haven't been as good. Shares tanked last week as the company posted lackluster results. 

That’s bad news for current shareholders, but good news for those who have been patiently waiting on the sidelines to get in. Here’s why.

Recent events

Sun Life shares fell nearly 8% on the Toronto Stock Exchange two Fridays ago after releasing earnings on the previous Thursday evening. The issue wasn't the earnings themselves -- that number was $1.79 per share, which was a slight beat versus expectations of $1.76 per share. 

The issue is with the U.S. dental business. Although the company still projects 12% annual growth from its total U.S. business in the medium-term, it acknowledged some issues with Medicaid funding that has impacted that one part of its U.S. operations.

Essentially, Medicaid is approving fewer dental procedures than the company first estimated. This has impacted the profitability of this part of the business, and there's uncertainty of where funding will end up in the future. 

Here's the transcript from the company's conference call. 

We'll note that the company remains committed to 12%+ annual earnings growth from its U.S. business, even considering this latest issue with dental. It isn't just a dental insurer in the U.S., it also provides stop-loss health insurance, and group life/disability insurance for some 9M Americans. It also has a large annuity business in the U.S. There's only one part of a larger business that's having problems here — the rest is tickety boo.

Despite the impacted part of the business only accounting for a maximum of US$100M in earnings this year -- and realistically much less than that -- the stock lost approximately $3.8B in total value (a decline of $6.72 per share multiplied by 568M shares). That seems like a tiny bit of an overreaction.

Even if the U.S. dental business goes to zero — which isn’t happening — the company lost 38 years of U.S. dental earnings overnight.

I believe the bigger issue is uncertainty surrounding the U.S. healthcare system in general. UnitedHealth (NYSE:UNH) is currently being investigated by the Department of Justice, which has tanked the stock. Investors are overreacting to this news and sending other U.S. health insurers reeling even when they report a sniff of bad news. Sun Life did that last week, and the stock suffered.

The long-term picture

When we zoom out, a much more attractive picture emerges. Sun Life has a wonderful record of producing better than average returns for investors, and it appears poised to continue that growth.

We’ve already covered the U.S. operations, so let’s pivot to Asia. In 2024, individual protection sales in Asia were up 20% on a year-over-year basis. And that was after a 14% increase in 2023. Second quarter results in Asia also saw net income 15% higher than last year. Strong product sales helped, but asset management has also contributed to growth lately.

Sun Life is becoming a major player in Asia, and the company has gotten to the point where the Asian business ($206M in underlying net income) has surpassed the U.S. business (US$143M in underlying net income). Plus, Asia is growing faster.

Put it all together, and Sun Life is still projected to grow normalized earnings by 9.6% this year to $7.30 per share. Growth is expected to continue in 2026, hitting $7.83 per share.

Shares are currently trading hands at right around $80 each. That puts the stock at just over 10× 2026’s expected earnings — a value I believe to be a steal for a proven winner such as Sun Life.

Grabbing the stock at just over 10x forward earnings looks like a reasonable entry point.

Expected dividend growth

Sun Life is serious about growing its dividend, and it has more than a decade’s worth of consistent dividend growth under its belt. That record would be a lot longer if it wasn’t for the global financial crisis of 2008-09, when regulators forced the company to maintain its dividend.

Unlike Manulife, Sun Life never cut its dividend.

Since 2015, dividend growth has averaged about 9% per year.

Dividend growth should continue on about the same pace. The company has been giving investors two small dividend hikes each year since 2021. The current payout ratio is about 45%, which is right about where management would like it. Most major players in the Canadian financial space offer a payout ratio in the 45-50% range.

Another thing that will make dividend growth easier going forward is the share buyback. Sun Life repurchased 1.2% of shares outstanding in 2024, and it has continued the buyback into 2025. Considering the company’s solid balance sheet and the currently depressed share price, I’d expect further buybacks to happen.

The current dividend yield is in the 4.5% range, which is about 15% higher than average over the last decade. Like I said earlier, it’s an opportunity to buy a little more yield than normal. That’s exactly what dividend investors should be looking for.

The bottom line

Sun Life is one of those boring stocks that doesn’t get much attention. Investors focus more on Manulife or Great-West Life on the dividend front, since both those stocks have traditionally paid higher yields.

(In an interesting twist, Sun Life now yields more than Manulife. That’s a relatively rare phenomenon in the last decade. In fact, it really only happened in the latter part of 2017 and for a couple of months in 2024)

I think focusing on Manulife and Great-West Life over Sun Life today is a mistake. Sun Life checks off a lot of boxes, and should be poised to deliver solid returns going forward. It’s one of Canada’s few set it and forget it stocks.

In a world where investors are happy to pile into the latest sexy name that might go up (or down) 40% on better than expected earnings, a company like Sun Life can look downright prehistoric in comparison. Who wants to wait years for dividends to increase when they can get that dopamine hit now, dargbloomit?

Take advantage of this rare pullback to add the stock to your portfolio. I don’t think you’ll regret it 5-10 years from now.