Where does Aflac (AFL) rank after its 5% announced dividend increase?

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Summary: Aflac’s (NYSE:AFL) dividend was increased by a modest 5%. Aflac was incorporated on April 27, 1973 and provides supplemental health and life insurance. Its products are marked under the Aflac acronym and administered through the subsidiary, American Family Life Assurance Company of Columbus. Aflac offers these supplemental insurance policies primarily in Japan and the United States. Aflac has paid dividends consecutively for 34 years, making the firm a dividend aristocrat. The insurance company also released financial results at the same time as the announcement of the dividend increase. For Q3, revenue rose by a solid 13 percent on a year-over-year basis to $5.72 billion. The firm’s business in Japan continued to perform well with revenue rising by nearly 19 percent. This was slightly under analysts estimates. On the positive side of the ledger, Aflac increased its earnings per share (ESP) guidance to a spectrum of $6.40 to $6.60. This is $.20 cents higher than the previous median estimate. The quarterly dividend for the December payment will be $0.43 versus the prior year rate of $0.41 per share. The overall yield is 2.51%, above that of the S&P 500. It currently ranks 14th out of large cap insurance firms paying a dividend of over 1%. Aflac is a solid company with modest dividend growth. However, last year Standard & Poor’s Ratings Services dropped its long-term financial strength rating on Aflac’s core operating companies to A+ from AA-. And its junior subordinated debt is now rated BBB from BBB+, though the outlook is stable. The firm does not qualify as a member of our Top 100 Dividend Stock List (see below).

  • Aflac Inc. is currently priced at $68.51. The new dividend of $0.43 will be paid at the new higher rate on December 1, 2016, to shareholders of record at close of business on November 16, 2016. Listed in the table below are the quarterly dividend payments since 2010.
Date Quarterly Dividend
11/16/2016 0.43
8/22/2016 0.41
5/16/2016 0.41
2/11/2016 0.41
11/16/2015 0.41
8/17/2015 0.39
5/18/2015 0.39
2/12/2015 0.39
11/17/2014 0.39
8/18/2014 0.37
5/19/2014 0.37
2/12/2014 0.37
11/18/2013 0.37
8/19/2013 0.35
5/20/2013 0.35
2/13/2013 0.35
11/9/2012 0.35
8/13/2012 0.33
5/14/2012 0.33
2/13/2012 0.33
11/14/2011 0.33
8/15/2011 0.3
5/16/2011 0.3
2/11/2011 0.3
11/15/2010 0.3
8/16/2010 0.28
5/17/2010 0.28
2/11/2010 0.28

Analysis of Aflac Inc. is based upon our five key criteria for the Top 100 list, which include;

Category Value Score
Dividend Yield 2.51% 215
Dividend Growth (3-6 year avg) 5.9% 292
Forward P/E 9.91 24
S&P Financial Rating A+ 80
Beta 1.10 110
Total Score 721

Additional Information;

% Yield 3 Year Div. Growth Rate 6 Year Div. Growth Rate BV 2016 P/BV Ratio 10 yr P/BV Low 10 yr P/BV High 5 yr max Yield % 5 yr lowest Yield %
2.51% 5.3% 6.5% 57.5 1.19 0.60 3.83 3.32% 2.11%

Final Analysis;

Positives;

  • Aflac is trading at a low forward P/E ratio, well below the market. Additionally, it’s also trading below its average historical price/book value (P/BV) ratio. From a relative valuation perspective, Aflac is undervalued.
  • Aflac’s dividend yield is above that of the S&P 500 Index.
  • Aflac maintains a 3 year dividend growth rate of 5.3%.
  • Aflac has paid out a dividend consecutively for the past 34 years.

Negatives;

  • Aflac’s credit rating has been recently downgraded.
  • Aflac maintains a beta of 1.10, higher than the average company.
  • Aflac’s current dividend yield (2.51%) is below its five-year average historical dividend yield of 2.72% and well off its maximum yield of 3.32% from July 2012.

Aflac Inc. (NYSE:AFL) does not qualify as one of our Top 100 Dividend Stocks due to its recent credit rating downgrade, modest dividend enhancements, and a higher than average beta. Aflac’s insurance industry competitors Prudential (NYSE:PRU), Chubb (NYSE:CB), Principal (NYSE:PFG), Travelers (NYSE:TRV), and Metlife (NYSE:MET) all rate higher (total score example) and are listed within the Top 100.

Aflac Inc. Dividend Yield Historical Chart (Click to enlarge) afl3

Chart Explanation:  Dividend growth stocks may be viewed undervalued when the current yield is above historical readings for the past 5 years. 

Further information on dividend investing and evaluating dividend growth candidates can be found at http://seekingalpha.com/author/timothy-mcintosh/articles

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