Aflac (AFL) Stock Analysis

Aflac (AFL) is one of the dividend aristocrats and have taken a small hit year-to-date of about 6% to their stock price.  The one tough thing to swallow is it’s heavy operations in Japan and then the remaining portion in US.  This may cause currency translation fluctuations, as well as having too many of your eggs in 1/few baskets.  Let’s dive into this stock, as I actually have a position in them already, they are a nice aristocrat (increasing dividends for 25+ years) and are one of few stocks to be on the downside Year-To-Date.

Aflac_Color

From using our Dividend Stock Screener attributes, let’s analyze Aflac:

Dividend Increases: When it comes to Dividend increases from Insurance companies, Aflac plays with the best of them.  Where AFL has raised the dividend for 31+ years.  When analyzing the 5 year stock history and pairing that up with the dividend yield, the average yield over that time frame through June 28th = 2.58%.  This is still a tad higher compared to today’s yield of 2.36%, with a potential October dividend increase to bring it back up to it’s previous long-term average.  The 3 year dividend growth rate is approximately 7.26%, so for simple math purposes, if Aflac increases their dividend 7.26% this year and goes from $0.37 a quarter to $0.40, this would make the yield of $1.6/$62.72 = 2.55% aka pretty damn close to the historical 5 year average, funny how that works in a way, right?  The pros here: Aflac has increased for 31+ years and has an “in the middle” dividend growth record of 7%+, our friend Dividend Mantra would call this a Stage 2 stock, which I would agree with.  Given the history = check in the box.

Price to Earnings (P/E) Ratio: Current share price at the end of Friday’s close = $62.72.  Q1 filed SEC 10Q return shows a diluted earnings per share of $1.60 this quarter.  The income has tracked slower than the Q1 of 2013, primarily due to lack of growth in Japan, but also a battling currency translation, as US sales were actually up compared to a year ago quarter.  From review of the balance sheet – total assets were up with policy liabilities decreasing.  Given the $1.60 of earnings for the Q, one can annualize this to reach $6.40 diluted EPS for the year.  With Aflac currently trading at $62.72, the P/E looks something like this: 62.72/6.40 = 9.80.  Which wow!  That is extremely low for a company in today’s market, and is around half of what the S&P 500 market as a whole stands.  Easy check in the box for this metric.

Dividend Yield: Again, we like to see the dividend yield above the S&P 500 as a whole, which currently is at 1.85%.  Therefore, Aflac is far above this by 51 basis points.  Aflac has increased their dividend every year for 31+ years, and there is 100% confidence they will do it again this year and be more near the 2.55% yield as I stated earlier in the first section above.  That provides around 70bp higher than the index, which when you invest $1000 into each = an extra $7 of income generation (when using the 2.55%).  I know that doesn’t seem like a lot now, but that will continue to grow and compound.  I’d say a check in this box here.

Payout Ratio: iven the $1.60 of earnings for the Q, one can annualize this to reach $6.40 diluted EPS for the year.  With Aflac currently paying a $0.37/dividend per quarter, one can annualize that out to $1.48.  Thus, the P/E on annualized Q1 earnings = $1.48/$6.40 = 23%.  This is extremely low, which gives us plenty of secureness that the dividend has the ability to increase year after year, with Aflac possibly even being able to afford much larger increases if they so wanted to.  Given that they are far, far less than 60% (I actually would like to see closer to the 35-40%), easy check here.

Conclusion: Obviously a very interesting standpoint where Aflac stands.  Historically they aren’t over where there dividend yield on average is over the last 5 years, being around 20 bps lower, Aflac would have to drop to $57.81 to reach the 5 year dividend yield average on today’s current dividend, which would be a 7.8% decrease to the stock price.  However, one can rest their head on this: Dividend yield is higher than the index, payout ratio is absurdly low with ample room for increases, the P/E is crazy low and they have increased their dividend for 31+ years, with an estimated October 2014 increase this year.  It may not be bad for those looking to initiate a position in an insurance company and given a further decline slide, to potential scoop a little more up.  Given there is approximately 45-50 days until the next ex-dividend date, I will monitor the price fluctuation of this stock and if it slides a dollar or two more, may add more to my current position.

Does anyone own AFL?  Anyone looking at them/have them on their watch list?  Entry points needed?  Thanks for stopping by, comments are greatly appreciated!

-Lanny

DISCLOSURE: I DO NOT RECOMMEND ANY DECISION TO THE READER or ANY USER, PLEASE CONSULT YOUR OWN RESEARCH. THIS IS ACTUAL DATA, ANALYSIS, HOWEVER I BASE NO INVESTOR RECOMMENDATION.  THANK YOU FOR YOUR UNDERSTANDING.
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14 thoughts on “Aflac (AFL) Stock Analysis

  1. Hi Lanny,
    I enjoyed reading your analysis, that’s really well done. I hope the price dips so you’re able to acquire more shares.
    Is there any particular metric that is making you wait for a slightly lower price though?
    Thanks for sharing and enjoy your day!

    • D. Life,

      Thanks for reading and checking it out! I was hoping to see the price/yield come closer to the 5 year yield average – however, with an increasing looming in the upcoming months, this yield should be back up to that point. It’s a stock that is never bad to add to a position. Have you considered a position? Hope you enjoy your 4th!

      -Lanny

      • Hi Lanny,
        Yes, AFL is on my watchlist along wth CB. I’m currently cycling through the different sectors in my portfolio – partly to balance it out and partly to actually look at what I hold since some of my older purchases were more emotional than rational. I’m looking at the Consumer Defensive sector next and should be posting my analysis later today. But I should be back to Financials next month and so we’ll see how it looks.
        Have a great 4th … and a 5th & 6th too! 🙂

        • Div Life,

          It’s always a tough debate between CB & AFL = both are amazing and cannot go wrong! I think I am also low in my insurance sector, so I think I’ll add hopefully soon to AFL. We shall see what the next few weeks bring.

          Consumer Defense sector – any in mind? I’m excited to see your analysis, I’ll bounce over and check it out!

          Enjoy your weekend as well, thanks for all the stops over here! I’ll add you up to our blogroll.

          -Lanny

      • Hi Lanny,
        I’ve just updated my original post about my PG purchase to include a chart of the dividend yield over time vs share price for every day since the start of 2009. You mentioned about the 5 year historical yield in your comment above and I’m curious if you just use the 5 year average value or if you look at any trends as the yield changes over time? I found the chart quite interesting to look at – do you think there’s any value in it?

  2. Lanny,

    Good stuff! I appreciate this as a shareholder of AFL.

    I don’t know what one could really dislike about the stock/company. Pretty decent yield, low payout ratio, solid financial standing, great growth, low valuation, long history of dividend raises, easily understood business model, and a great brand. I’m happy to own a chunk of the duck. 🙂

    Best wishes!

    • DM,

      Thanks for checking out the analysis! It’s interest, I am sure this analysis would look similar year after year – aka – undervalued, strong dividend player & payer, and always up for consideration to buy or “buy more” in our case. Owning a chunk or two of the duck isn’t a bad thing and I’ll let it continue to quack in my portfolio. Hope to add more here soon at some point, we shall see! Thanks again DM – hope you have a great 4th!

      -Lanny

  3. I like the analysis, thanks for sharing! I initiated a position in AFL a few months back and believe it is one of the few remaining obvious buys in the current market. Enjoying the content you guys are putting out, here’s to a great July 🙂

    All my best,
    Ryan

    • Ryan,

      Thanks for coming by and reviewing the analysis – I love hearing the feedback to see what you all see/think from what I put out there. That’s awesome that you initiated a position in AFL. I truly think it is one of those stocks that are in Mantra’s mid-range for the type of dividend payer it is – and there is truly not a best/worst time to buy the stock – you buy it and it performs well. I hope to review the price and metrics to see about adding more to my position – as I have done twice already haha.

      Thanks again Ryan for the props on our content – we definitely are trying and focusing on adding our flavors, adding our experiences/journey to the “promised financial land” and showing our financial analysis “expertise” (haha, though we all can judge that one) throughout our posts. Your compliments mean a great deal – thank you! Enjoy your 4th!

      -Lanny

    • Living@Home,

      Thank you for checking it out – I appreciate the look! I think that’s around the time I bought and/or increased my position too – how funny? haha They are undervalued currently I feel and have an extremely strong history of increasing their dividend. Looks very enticing! I feel they are here to stay, and are here to stay for a long time. Thanks again, hope you have a great 4th!

      -Lanny

  4. Hello,

    Thanks for nice analysis. I have this stock in my watchlist, but still have some issues:
    Free Cash Payout ratio TTM is above 5-Year Average, but this shouldn’t be a big problem due to the situation, that it is really low
    However I’m a bit more worried about decreasing cash return on capital and increasing long-term debt to assets ratio.
    From dividend point of view, their dividend growth for last year is lower than 4-year average and 4-year average is just above my minimum of 6%.

    So overall, I still keep this stock in my watchlist for one more quarter to be sure that trend is changing to the side I want to see it.

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