Christinne Muschi
Is Sun Life Financial Inc.'s dividend at risk? It certainly looks that way.
The life insurer has paid out more than 100 per cent of its earnings in the form of dividends in 2008 and 2009. While that's a problem in and of itself, it now coincides with a downgrade by Standard & Poor's.
The credit rating agency on Tuesday lowered its rating on Sun Life's debt by one notch, to single-A from single-A-plus at the operating company. For the holding company, S&P lowered its rating to double-A-minus from double-A and maintained a "negative" outlook.
"The downgrade reflects continued concerns on credit and that earnings are unlikely to achieve the high end of the company's guidance range (which are required to maintain ratings) of $3.10 [per share]in 2010 and potentially in 2011," John Reucassel, an analyst at BMO Nesbitt Burns, said in a note.
He maintained a "market perform" recommendation on the stock, along with a 12-month price target of $30. However, he noted that the S&P downgrade means that "concerns on the sustainability of the Sun Life dividend may linger."
The insurer has a history of raising its dividend, but has maintained the quarterly payout at 36 cents a share since the start of 2008. Cutting the dividend is not without precedent: Manulife Financial Corp. , one of Sun Life's peers, shocked markets a year ago when it cut its quarterly dividend in half, to 13 cents a share from 26 cents.
David Berman