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.