AFL Aflac Dividend Stock Analysis

 

 

After the analysis of MCD last week, there was another stock on my radar that I wanted to check out. To be truly honest, I didn’t know much about this Dividend Aristocrat; Aflac Incorporated. I’ve been trading for several years but I’ve been looking into dividend stocks only since 2008. The fact that Aflac is an insurance company (AFLAC stands for American Family Life Assurance Company) was enough for me to check elsewhere to build my “stock on the radar list”.

 

But the fact that AFLwas part of our Dividend Growth Index caught my attention. I thought that if a dividend investor such as Passive Income Earner pickedAFL, I should take a look at it. So here’s myAFL analysis.

 

The Company Stock Description:

Aflac is mainly active in the life and health insurance industry. They operate 2 main businesses: AflacUS(which operation in theUnited States) and AflacJapan(which provide insurance products inJapan). They cover most supplemental insurance products from cancer or care plans to annuities. They do not offer home insurance in Japan so they weren’t affected by the Tsunami. The rise of cancer in today’s society is definitely a great market for them. Most people have general insurance provided by their employer but will look for more protection by dealing with companies such as Aflac.

 

Stock Graph

 

The Company Ratios and Financial Info:

 

Current Dividend Yield	2.92%
5 year Dividend Growth	15.11%
1 year Dividend Growth	9.09%
Dividend Consistency
Dividend Momentum
Company Metrics
Sales Growth (1 year)	11.97%
Sales Growth (5 year)	10.21%
EPS Growth (1 year)	15.61%
EPS Growth (5 years)	14.37%
P/E ratio	7.0389
PEGRatio (3 year expected)	0.5502
Payout ratio	29.0%
Return on Equity	15.99%

 

 

 

I was mostly impressed by 2 things when I looked at theAFLmetrics. The first one is the fact that they kept increasing their dividend in 2008. WhileAIGwas going bust andAFLhad lost 30% on the stock market, they sent a strong message by keeping their Aristocrat habit of raising their dividend. With a payout ratio of 29%, we can understand that even the worst economic crisis of the century was not enough to slowAFL’s dividend growth.

 

The second metric that impresses me is its sales growth in a relatively mature market. Since insurance products have been around for so many years, you wouldn’t expect a double digit growth during a tough economy. Both sales and earnings grew significantly. This also explains why the dividend growth is in the double digits as well.

 

Stock Technical Analysis

 

 

AFL is trading on a down trend. Click Here to get a free AFL technical analysis report.

 

Upcoming opportunities and dangers:

 

Back in 2009, 73% of Aflac’s revenue came fromJapan. While it provides a great geographical diversification, three quarters seems a little bit too concentrated. It’s more like having a Japanese company operating in theUS;-). The currency risk is not too important for Aflac as they rarely convert their assets. Therefore, they use their Yen to invest in Yen and their US dollars to do the same on this side of the planet.

 

Aflac’s presence inJapanis also an advantage when compared to their main competitors (AIGand MetLife (MET)). While they are both a lot bigger than Aflac, theJapanniche is well guarded.

 

After missing Q4 estimates in January,AFLrecently increased its expectation for itsJapandivision for 2012. Overall EPS should be between $6.46 and $6.65 vs an estimate of $6.47. With a very low P/E ratio, I guess you can’t really go wrong withAFL.

 

Final Thoughts

Looking atAFL, I’m still a bit reluctant to go forward and add it to my watch list since it’s an insurance company (never invest in something you don’t understand, right?). I do understand how insurance works but what I don’t know is how they manage their asset portfolio to make sure they are able to cover all claims. The success lies in how they assess their cash flow needs along with how they manage their assets in the meantime.

 

AFLobviously does a great job in both cases if you look at their continuously growing numbers. The fact that their payout and P/E ratios are both very low leads me to guess that the both the dividend and stock price will rise in the future. For that reason,AFLwill be added to my “stocks on the radar” list.

 

Disclaimer: I do not holdAFLposition at the time of writing this post.

 

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