Recent Buy - Aflac Inc (NYSE: AFL)

 

Aflac, Inc. (AFL) is a general business holding company and acts as a management company, overseeing the operations of its subsidiaries by providing management services and making capital available. Its principal business is supplemental health and life insurance, which is marketed and administered through its subsidiary, American Family Life Assurance of Columbus, which operates in the United States and as a branch in Japan. Aflac was founded nearly six decades ago (on November 17, 1955) by John Amos, Paul Amos and William Amos.  The company headquartered in Columbus, GA.

 

In a nutshell, when a policyholder gets sick or hurt, Aflac pays cash benefits fast. Aflac insurance policies have given policyholders the opportunity to focus on recovery, not financial stress.

 

Just some fun facts:

• For eight consecutive years, Aflac has been recognized by Ethisphere magazine as one of the World's Most Ethical Companies.
• In 2014, FORTUNE magazine recognized Aflac as one of the 100 Best Companies to Work For in America for the 16th consecutive year.
• Also, in 2014, FORTUNE magazine included Aflac on its list of Most Admired Companies for the 13th time, ranking the company number one in the life and health insurance category.
• Aflac Incorporated is a FORTUNE 500 company listed on the New York Stock Exchange under the symbol AFL.

 

RECENT PURCHASE

I just purchased 10 shares of Aflac Inc. (AFL) today to further increase my exposure to the financial services sector. I didn't own any shares of Aflac before today's purchase. Most importantly, my purchase of Aflac today provided a $14.80 increase to my annual dividends. Since I still have free trades with my brokerage account, the purchase did not cost me any commission fees. At today's purchase price of $61.00, my yield-on-cost was 2.43%. Given Aflac's history of dividend increase, I have no doubt that my YOC will continue to rise.  

POSITIVES

Based on my research, below are a couple of reason to own Aflac Inc:

• Aflac is the leading provider of voluntary insurance at the worksite
• In Japan, Aflac is the number one life insurance company in terms of individual policies in force.
• Aflac individual and group insurance products help provide protection to more than 50 million people worldwide.
• Over the past 10 years, AFL has grown after-tax profit by 15% compounded annually.
• Aflac’s 10-year total return to shareholders, including reinvested dividends, is 112.7%.
• Currently, Aflac has a relatively low P/E of 9.29 
• Aflac has increased its annual dividend for 30 consecutive years.



• Current dividend of $1.48 represents a payout ratio of only 22.33%.
• Aflac repurchased $415 million, or 6.5 million shares, of its common stock during the 1st quarter of 2014 with plans to repurchase $800 million to $1 billion of our common stock in 2014



• First Quarter Results:
• Total investments and cash increased 2.9% to $110.5 billion, compared with $108.5 billion at December 31, 2013.
• Benefits and claims fell 8.6% to $3.22 billion during the 1st quarter of 2014, compared with $3.52 billion in the 1st quarter of 2013
• Shareholders’ equity was $15.7 billion, or $34.53 per share, at March 31, 2014, compared with $14.6 billion, or $31.82 per share, at December 31, 2013.
• Outstanding shares decreased 2.6% to 454 billion during the 1st quarter of 2014, compares to 466 billion in the 1st quarter of 201

My Opinion:

• I believe all of the positives surrounding Aflac Inc. certainly outweigh the negative. 
• I believe Aflac has proven, through its 30 years of increasing annual dividends that it know has to management and preserve its assets in the best interest of its shareholders.
• I believe the low payout ratio provides the extra assurance to stockholders that their dividends are not at risk.
• I believe as the interest rates start to rise, Aflac's operating cash flow should slowly improve as a result.
• With increasing GDP and medical costs in Japan, there is certainly still plenty of growth opportunities in Japan.

NEGATIVES

Based on my research, below are a couple of reason not to own Aflac Inc:

• Despite currently having a low debt-to-equity ratio of 0.34, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further.
• Total revenues fell 9.1% to $5.6 billion during the first quarter of 2014, compared with $6.2 billion in the first quarter of 2013.
• Net earnings were $732 million, or $1.60 per diluted share, compared with $892 million, or $1.90 per share, a year ago.
• Aflac Japan’s total new annualized premium sales in the first quarter were down significantly.
• There is some concern of the negative impact that the ongoing low-yield landscape in both Japan and the U.S has on Aflac's operating cash flow.

 My Opinion:

• As stated above, I believe all of the positives surrounding Aflac Inc. certainly outweigh the negative. 
• At the current price, given the growth potential in Japan and the positive impact from the inevitable rise in interest rates, AFL is a nice value at current prices. The stock has a 52-week high of $67.62 ($6.62 or 9.79% more than my purchase price today).
• Given 30 year track record for increasing dividends, I believe the dividend outlook is solid.  At worse, dividends should remain the same.

A FEW RECENT ARTICLES ON AFLAC INC:

• Buy Aflac: A Quality Stock With Potential Catalyst by Seeking Alpha
• Aflac is Todays Storm of the Castle Stock by TheStreet.com
• AFLAC Price Target Increased to $66.00 by Analysts at RBC Capital (AFL) by InterCooler

What do you think of AFL here? Do you think it’s fairly valued? 
 
I’ll update my Dividend Stocks Portfolio in a few days when the executed purchase has been finalized.  

Full Disclosure: Long AFL.

Thanks for reading.

Stock Analysis - BHP Billiton ADR (NYSE: BBL)

 

 

I have been watching BHP Billiton (BBL) for a while and thought I'd do some research and analysis of the stock to determine if I would be interested in initiating a purchase of some shares in the near future. Below is a summary of what I found:

BHP Billiton (BBL) is a natural resource company. With more than $60 billion of annual sales, a diverse global footprint, and nine separate businesses, it focuses on: energy, steel inputs, and a broad array of industrial metals. BHP Billiton is headquartered in Melbourne, Australia and was formed in 2001 through the merger of Broken Hill Proprietary Ltd. of Australia and Billiton Plc. of Great Britain.

 

Recently, BHP Billiton reported a 65% increase ($11.9 billion) in operating cash flow and a 25% reduction in cash outflows from capital and exploration expenditures thus leading to a $7.8 billion increase in free cash flow. Results were driven by continued cost cutting and strong production growth of 10%, particularly in iron ore, coal and copper. And an underlying capital return of 22%. Despite broader weakness in commodity prices, BHP continues to perform very well. Looking forward, BHP expects production growth of 16% over the next two years.

POSITIVES

 

Dividend Growth / Yield - BHP Billiton has been growing their dividend now for 13 consecutive years since the 2001, when the company was formed. The company pays semi-annual dividends that are paid out in March and September.  The last dividend they paid in March of this year was $1.18 per share.  At the close of market on Friday, May 23rd 2014, shares of BBL stock traded for $65.43.  This gives the stock a current dividend yield of 3.60% (2.36/65.43).

The company’s most recent dividend increase was only 3.5%.  A little small but still an increase nevertheless. The dividend has still grown at a 18% compounded annual rate over the past 10 years. More importantly, the $6.3 billion dividend commitment is comfortably covered by internal cash flow. 



Outstanding Shares - It appears that BHP Billiton has kept outstanding shares even for the past few years. Although seeing a decreasing trend in the amount of shares outstanding is preferred, it is equally nice to see BHP Billiton has not done anything to dilute their shares. Since 2011, the outstanding shares has gone from 2,770mil down to 2,673mil. This data is nothing impressive, but its not negative either.  

 

Dividend Payout Ratio - BHP Billiton currently has a dividend payout ratio at roughly 43%. The company essential uses less than 50% of its earnings to maintain its current dividend. The lower payout ratio gives me confidence in the safety of the dividend for years to come.

 

Price/Earnings Ratio - BHP Billiton has a P/E of approx. 11.72. Ideally, a P/E average around 15 is preferred. From the P/E ratio alone, BHP Billiton appears attractively valued at the moment. However, I wouldn't place too much emphasis on P/E because it may not always be reliable.

 

Valuation - BHP Billiton is currently trading at -4.08% below its 52-week high.  The stock is trading around 12 times the fiscal 2014 earnings estimate.

 

POTENTIAL RISKS

The following is a list of things that could affect BHP Billiton's ability to perform:

• A sharp decline in commodity prices (primary risk). So far, in first half of 2014, commodity prices has exhibits relative stability.
• An economic or financial crisis, especially in emerging markets such as China.
• A weakened US economic recovery.
• BHP Billiton has historically grown through acquisitions. If the company overpays for an acquisition, it could impact returns.
• Upcoming maturities of net debt which currently stands at $27.1 billion. But with improving operations cash flow, the net debt is expected to decrease to $25 billion by the end of fiscal year 2014.



RECOMMENDATION

I like BHP Billiton and think it is a decent value for long-term investors. While I strongly believe that the company is committed to annual dividend growth, I only expect a modest future growth rate.  With that said, I think I am going to continue to watch BHP Billiton ADR (BBL) and wait for a dip before I initiate a purchase.  I like the stock just below $60.00 and have set an price alert aligned with this sentiment.

Disclosure:  I don't own any shares of BBL nor do not intend to purchase this stock in the next 72 hours. Click on the following link if you would like to view my dividend stocks portfolio.

Recent Buy - Target (NYSE: TGT)

 





I just bought 10 more shares of Target today in an effort to increase my exposure to the consumer discretionary sector. My purchase of Target today increased my total share count to 20 shares. And more importantly, it provided a $17.20 increase to my annual dividends.  And since I still have 70 free trades with my brokerage account, the purchase did not cost me any commission fees.

At today's purchase price of $56.90, my yield-on-cost was 3.0%.  Target has a current P/E is 18.44, with a forward P/E (1yr) of 14.61. Target has a 5-yr trailing growth of 20% and a LT dividend growth estimate of 12%. Target has paid a dividend to its shareholders since 1967 with 42 years of consecutive increases. That is an increase in all but 5 years!!

POSITIVES

• Target is the second largest U.S. discount store retailer.
• Although Target current has 1,793 Target stores in the U.S. and 124 stores in Canada, analysts believe Target still has room to grow. 
• Analysts forecast Target growth at a 10% average pace over the next 5 years.
• Target is expected to continue to increase its penetration into grocery and household consumable goods.  Currently, only 35% of its sales. 
• Current dividend of $1.72 represents a payout ratio of only 43%.

My Opinion:

• I believe Target has strong competitive position and solid long term growth prospects.
• I believe Target has a strong loyal customer base.  Personally, I know there are people out there that prefer Target over Walmart simply because of the store experience even though Walmart prices is generally cheaper.
• I believe the Target REDcard and the 5% reward program is under-appreciated. In the long run, as the program gains acceptance, I think purchases through the REDcard reward program will help lift sales and provide added value to the company.
• I believe the remodeling of the stores (P-fresh) to provide more food and consumables will help drive up sales for Target.  From my own experience, it is very convenient for customers to do all their shopping in one store.
• I believe the search for new CEO could provide fresh perspective for shares long term.

NEGATIVES

• Walmart has a pretty solid hold of the first place position amount discount store retailers.
• Target has posted lackluster results for past 5-quarters in the US.
• Expansion into Canada has been a disappointment.
• Massive data breach prior to Christmas.
• The stepping down of prior CEO, Greg Steinhafel, could be seen as a negative by some as they only have an interim CEO in CFO, John Mulligan. There could be some disruption in the near term.
• Target also just fired the president of its Canadian stores.

 My Opinion:

• I believe most of the bad news is already priced into the stock as the stock has a 52-week high of $73.50 ($16.60 or 22.6% more than my purchase price today).
• At the current price, given the growth potential surrounding the REDcard reward program, improving sales in Canada, and increase grocery and household consumable goods, Target is attractively priced.
• Given Target's solid track record for increasing dividends, I believe the dividend outlook is solid.  At worse, dividends should remain the same.

What do you think of TGT here? Do you think it’s fairly valued? 
 
I’ll update my Dividend Stocks Portfolio in a few days when the executed purchase has been finalized.  

Full Disclosure: Long TGT.

Thanks for reading.

No impulse buys!

Samsung UN50H6350 50-Inch 1080p 120Hz Smart LED TV

 

I thought I'd write about this since our family recently decided that we would like to save up for a new LED TV.  Believe it or not, our TV is still a projection television. Most of our friends don't even know this because our TV fits perfectly into our entertainment center with maybe an 1" of space to give. The clarity is not bad as we do get HD quality picture. But compared to the new LED TVs these days, there is a noticeable difference.  We just don't know any better but maybe its because we seem to be watching mostly cartoons these days.

 

However, because an LED TV is a "want," it is obviously not budgeted; nor are we willing to tap into our savings to buy one. So we've now set out to save up the money for our eventual purchase.  Below is the process we always take when buying large purchases: 

 

STEPS FOR MAKING LARGE PURCHASES

 

STEP #1: ESTABLISH A BASELINE FOR THE ITEM YOU WANT

Consider the item you want to buy and carefully evaluate which features you absolutely must have and which features you are willing to live without. This is important because it will allow you establish a baseline to compare the item your buying and ensure they are on an equal playing field as you do you research on the item.

STEP #2: DO YOUR RESEARCH

This is the fun part, as you get to shop around and try to find the best deal. Now that you have a baseline for the item that you are looking for, it should be pretty simply to determine the best deal. 

 

Find the best deal: It can really pay to search a bit to find a good deal on an item. If you’re buying online, sites like RetailMeNot and Keycode can be a great source of discount codes that can save you 10-25%.

Beyond this, I use price comparison search engines to find the best deal. Even if you’re planning on buying from a local store, this information can be invaluable as it gives you ammunition for seeking a lower price from the merchant.

 

Beware of shopping base on price alone: Some people believe they are saving money by getting the cheapest item but it can backfire. There’s a difference between being frugal and being cheap. In the case of the former, you’re getting more for your money. In the case of the latter, you’re buying something that will likely wear out and need to be replaced.

 

Read reviews: Part of your research must include looking at reviews online and/or asking your friends and family for their personal experience or opinion on a particular product or model. Even if they don’t have the exact same model that you are looking for, they may still have valuable insight based on their personal experience. For instance they can tell you the features they absolutely love, features they wish they did have which another particular model may provide, or features that are simply not effective or worth the money.

Depending on what you’re looking for, Amazon.com is a great source of user reviews. Our family subscribes to Consumer Reports and therefore always check with their reviews on products.  It is our experience that they rate just about everything.

STEP #3: START SAVING FOR YOUR ITEM

Now that you know exactly what your are buying, and where you plan to buy it, its time to start saving for the purchase. I know many of you are thinking...is this guy really serious? But I’m here to tell you from experience, this step is the most important step. I say this because as you save for the purchase, it allows you to take a step back and truly discover how bad you want the item.  It essentially keeps you from making an impulse buy! 

Many times, we have discovered during the saving process that we could live without the item for a while longer and as a result we sometimes slowed down the rate in which we saved for the product.  There were a few times, we increase our savings rate as well.

 

Accumulate the cash: To save for the purchase, we find it best to automate your savings to help you accumulate what you need in a dedicated account. Keeping the money in a separate account helps protect you from the temptation to dip into your emergency fund to make the purchase, and automating the transfer guarantees that it will happen.

While this sort of thing is often easiest to set up with an online savings account, many local banks and credit unions also allow you to open additional accounts without fees. Our family currently use a Capital One 360 online account for our savings. Capital One allows us to create a sub-account and automate periodic transfers in literally minutes.

Please note that we are assuming that the item is a “want” and not a “need.”  For items that are a need, we figure that you would use cash from your emergency savings.  After all, that is what your emergency savings was intended for. 

STEP #4: GO BUY YOUR ITEM AND ENJOY!!
Now that you've saved enough money to buy your large purchase, its time to go out and buy and enjoy your item! 

OTHER TIPS TO SAVE MONEY ON YOUR LARGE PURCHASES

 

·       Consider buying used: These days, with Craigslist, Facebook, Instagram, etc.  There are plenty of ways to buy lightly used items. And if you know how to drive a hard bargain, there is definitely opportunities to haggle your want to a great deal. 

·    Consider renting: This may not be available for all products but it is worth looking into for some products.  For instance, our family once rented a camera lens from a local camera store before we decided on which one to buy.  It allowed us to test the product and helped us determine exactly which lens was best for us. 

·    Consider borrowing or trading:  Sometimes, you may be able to trade for the item you want.  For instance, my wife recently traded a mountain bike and some cash for a practically brand new beach cruiser.  It was a great beach cruiser with a various speed controls and of course a nice basket.  As with our experience, it may not always be possible to find an equal trade, but your still likely to save some money doing it.

Making a major purchase doesn’t have to be a chore. If you plan ahead and save your money, you might even have a bit of fun during the process.

 

What are your favorite tips to save money on large purchases?

Lending Club P2P Account (Update) - May 2014





April was decent month for us on Lending Club as we purchased a total of $850.00 worth of notes this month. At the end of April, our Lending Club account balance was at $6,952.40. We received $582.30 in payments from our active notes in April; of which, we received, $40.51 in interest.  The principal balance of our active notes was $6,323.07, with $375.00 of loans in funding and a remaining cash balance of $254.33.  We are currently generating 5.24% on our seasoned notes.

 

 

 (we just added $543 of cash at the beginning of May)

 

In an effort to grow our Lending Club account, we are currently re-investing all of the payments that we receive from our notes. And when the cash balance is low, we are continuing to add more funds to the account so that we may constantly purchase new notes.

Although our cash balance was still $254.33, we had extra money laying around so we decided to add $543 to our Lending Club account in early May. Please note that since the graphic above was a screenshot taken on May 8th, the numbers do not line up with the April data provided because they are reflective of this new deposit. 

 

 

NOTES CRITERIA:

Our family has been investing in peer-to-peer lending notes for approximately 3 years now. And because of past defaults, we have now refined our search criteria. As a result, we now take a slightly more conservative approach with the notes we invest in. Currently, we only invest in notes that fit the following initial criteria:

• Amount requested is under $6,000;
• Credit score of 700 or more; and
• Monthly payment will be less than $250.

From those we evaluate (Employment Status):

• The borrower's income (prefer > $50,000 but depends on amount requested);
• Length of employment (must be > 2 years); and
• Their occupation (certain occupations, known to be more secured, are more desirable).

We then look at (Ability To Pay):

• Their credit history;
• Revolving balance; and
• Debt to income level, etc.

We do not invest in any notes where borrow is currently delinquent, of if they have had  a public record within the last 12 months. We also do not invest in notes where the description provided is "Other." We feel that there is too much risk involve when the borrower is not willing to reveal why he/she needs the money.

Click here to view our the current value of your peer-to-peer lending accounts.

Prosper PSP Account (Update) - May 2014

 

April was another good month for us on Prosper as we purchased a total of $740.21 worth of notes this month. At the end of April, our Prosper account balance was at $7,332.24. We received $244.20 in payments from our active notes in April; of which, we received, $49.42 (an increase of $4.20/mo.) in interest.  The principal balance of our active notes was $7,222.94 and a remaining cash balance of $109.30.  We are currently generating 7.76% on our seasoned notes.
 

 (we just added $523 of cash at the beginning of May)

 

 

In an effort to grow our Prosper account, we are currently re-investing all of the payments that we receive from our notes. And when the cash balance is low, we are continuing to add more funds to the account so that we may constantly purchase new notes.

Because our cash balance was down to $109.30, we decided to add $523 to our Prosper Account in early May. Please note that since the graphic above was a screenshot taken on May 8th, the numbers do not line up with the April data provided because they are reflective of this new deposit.  

 

NOTES CRITERIA:

Our family has been investing in peer-to-peer lending notes for approximately 3 years now. And because of past defaults, we have now refined our search criteria. As a result, we now take a slightly more conservative approach with the notes we invest in. Currently, we only invest in notes that fit the following initial criteria:

• Amount requested is under $6,000;
• Credit score of 700 or more; and
• Monthly payment will be less than $250.

From those we evaluate (Employment Status):

• The borrower's income (prefer > $50,000 but depends on amount requested);
• Length of employment (must be > 2 years); and
• Their occupation (certain occupations, known to be more secured, are more desirable).

We then look at (Ability To Pay):

• Their credit history;
• Revolving balance; and
• Debt to income level, etc.

We do not invest in any notes where borrow is currently delinquent, of if they have had  a public record within the last 12 months. We also do not invest in notes where the description provided is "Other." We feel that there is too much risk involve when the borrower is not willing to reveal why he/she needs the money.

Click here to view our the current value of your peer-to-peer lending accounts.

Dividend Stocks (Update) - May 2014



 

Here is the recent update to our dividend stocks portfolio – May 2014.

SALES
As noted in the narrative for our dividend stocks portfolio, we are in the process of rebalancing our portfolio to meet our current stock criteria. Some of our holdings, therefore, do not reflect our current goals, but we are in the process of selling a few of them as they reach our limit price.  With that said, we have sold the following positions this past month:

4/15/2014 - 25 shares of EXC (Exelon Corp) at $36.00/per share (total: $899.98).
4/16/2014 - 50 shares of FTR (Frontier Communications Corp) at $5.75/per share (total: $287.49).
4/21/2014 - 25 shares of FTR (Frontier Communications Corp) at $6.09/per share (total: $152.25).
4/28/2014 - 25 shares of EXC (Exelon Corp) at $36.50/per share (total: $912.48).

Total value of all sales: $2,252.20*

*We receive 100 free trades per year through our brokerage account so there was no commission paid on these sales.

PURCHASES
April was a busy month for me so I didn't get to add as many positions as I would have like to.  This past month we have added the following position:

4/28/2014 - 50 shares of ARCP (American Realty Capital Partners Inc) at $12.63/per share (total: $631.50).

Total spent on new acquisitions: $631.50*

*We receive 100 free trades per year through our brokerage account so there was no commission paid on this purchase.
 

DIVIDENDS
April was another decent month.   So far this year, we are averaging $159.265 in dividends each month.  This past month we receive the following dividends:

4/1/2014 - Dividend from BPY (Brookfield Property Partners) : $11.79
4/2/2014 - Dividend from EDIV (SPDR S&P Emerging ETF Markets Dividend) : $0.91
4/8/2014 - Dividend from BBD (Banco Bradesco) : $0.59
4/14/2014 - Dividend from ARI (Apollo Commercial Real Estate Finance Inc) : $42.52
4/30/2014 - Dividend from AMTG (Apollo Residential Mortgage Inc) : $72.91

Overall dividend total this month: $128.72*

* We currently receive our dividends as cash in all stock positions held.
  
Amount added to cash reserves: $1,749.42 ((2,252.20 + 128.72) - 631.50)). I'm hoping for a small sell off or correction in May so we have more opportunities to use our cash from April to add a few new positions. 

In case you interested, our family's dividend stocks portfolio can be found here.

Mortgage Balance (Update) - May 2014



If you have viewed our family's net worth, you probably already know that it does not include the equity in our home.  Although, we do realize that it is technically part of our overall net worth, we decided that since our home equity is not an asset that we can count on for income (unless we sell and buy something cheaper) we would exclude it from our net worth calculation.

For the purpose of this blog, we are more interested in documenting our loan balance rather than our home equity.  With that said, we will use the current Zillow value as our estimated home value and use it to figure out the percentage we owe on our home. For those interested, we will include the amount of our home equity, but know that we are less concerned with the equity since we have no plans to cash out or otherwise sell our home. Our main goal is to pay off our home on or before my retirement date. 

 

Home Value:
According to Zillow, our home is currently worth: $746,101

Mortgage Balance (May 2014): $348,781.81

Percentage Owed: 46.7%

Home Equity: $397,319.19

For those that have not read the Preface on our home equity, we currently hold a 15-year fixed rate mortgage at the incredibly low rate of 2.875%.  My goal is to retire within 13 1/2 years so we are setting out to pay off our mortgage on or before my retirement date.  We reached a significant milestone this past month...More than 2/3 of our mortgage payment is now going towards the principal in our loan. That means less than 1/3 of our mortgage is going towards interest. Woohoo!