Shares in Manulife Financial Corp. fell nearly 15 per cent in trading Thursday after the insurance giant chopped its dividend by 50 per cent.

Manulife finished the trading day on the TSX at $22.45, down $3.80 or 14.4 per cent.

That came after Manulife said it was cutting its quarterly dividend by half or 13 cents a share, a move which the firm said will save approximately $800 million a year in cash outlays.

“While we recognize the importance of the cash dividend to many of our common shareholders, we believe that retaining more of our earnings is the most effective means of building capital," CEO Donald Guloien said in a press release of the company's second quarter earnings.

Manulife has run into trouble in recent quarters as a falling stock market played havoc with the firm's cash flows and forced management to re-examine whether there was sufficient capital to assuage credit agencies and government regulators.

The dividend cut — bound to be unpopular with investors seeking a stable return in the midst of a volatile economic environment — was needed to improve Manulife's financial picture in the coming months, management said.

"We … remain focused on achieving fortress levels of capital in all of our operating businesses, as well as at the consolidated company,” Guloien said.

Second quarter turnaround

For the three months ended June 30, Manulife boosted its net earnings by almost $3 billion.

For the second quarter, Manulife earned $1.77 billion, or $1.09 a share. That compared to a profit of $1.01 billion, or 66 cents a share, for the year-earlier period.

But, Manulife's financial turnabout — mainly because of a $2.6 billion non-cash gain in the company's equity holdings — was in sharp contrast to the Toronto-based insurer's first quarter.

In the January-to-March timeframe, Manulife lost $1.07 billion, or 67 cents a share.

Manulife did warn, however, that its corporate results likely would take a financial hit of about $500 million in the third quarter of the year because of altered actuarial and other assumptions.

Insurance companies are often forced to segregate some revenue based upon how many policies are redeemed and how stock markets are moving.

3-month stock chart for Manulife Financial Corp.

Overall, Manulife saw its second quarter revenue jump slightly more than 50 per cent to $11.4 billion versus the same period one year earlier.

In terms of insurance premium intake, however, Manulife posted revenue of $5.7 billion, a rise of 6.4 per cent compared to the second quarter of 2008.

By contrast, the company's investment income plus unrealized capital gains on its stock and bond holdings rose to $4.2 billion in the second quarter. That compared to $768 million one year earlier.