Wednesday, May 28, 2014

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.


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.  


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.


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.


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.


  1. Hey AFFJ,
    Very well written article on AFL here. I didn't really know about all the negatives about the company. However it seems like it is still a great stock pick because they continue to increase their dividends and have remained at a fairly low P/E. They are currently on my radar for next month but I was hoping the price to come down to $60. I also have OMI on my radar for next month. They have also been increasing dividends year after year and could be my next stock pick for June. I'm going to add this blog to my blogsters list in order to stay tuned to your future articles. Thank You and very nice blog!

    1. Dividend Mongrel - Thanks for the compliment. I do take pride in my posts and glad someone has noticed. I'll look into OMI, its not on my watch list yet. A dividend grower is always nice to own.

      Thanks for the support...I will do the same. Cheers! AFFJ

  2. AFL is a very reasonable buy right now, the stock price is plain cheap! I don't follow the company, but it seems to be conservatively managed. Think I'll add it to my watch list. Best wishes

    1. We thought AFL was a great buy...a P/E is the 9s and payout ratio at only 22% were the biggest factors. I'm confident the dividends will be around (and hopefully rising) for years to come. Cheers! AFFJ

  3. I have owned AFL for several months, thinking about buying some more in this current range. Thanks for the well written article.

    1. Thanks for stopping by and thanks for the compliment...Even though I have a full time job, and two toddlers at home, I always try my best to write good quality articles that I think people would appreciate and value. Best wishes. AFFJ