AFLAC Is a Strong Buy Based on Fundamentals

A smaller dividend increase shouldn't scare away investors

By Ed Elfenbein, Editor of Crossing Wall Street

After the closing bell on Tuesday, AFLAC (NYSE:AFL) reported third-quarter operating earnings of $1.77 per share. This was 11 cents above Wall Street’s forecast. Digging into the details, AFLAC’s bottom line was helped by some tax issues, but don’t let that fool you — AFLAC’s core business is doing very well.

AflacI won’t go into the exhaustive details, but if you want to learn more, check out this transcript from this week’s earnings call. The company explains how they’ve reduced their exposure to Europe.

For future guidance, AFLAC said it expects Q4 earnings to range between $1.46 and $1.51 per share. Since the company has made $5.12 per share over the first three quarters of 2012, this means that the full-year guidance is expected to range between $6.58 and $6.63 per share. That’s an increase from the previous full-year guidance of $6.45 to $6.52 per share.

As for next year, AFLAC expects earnings growth of 4% to 7%. Working off the higher base for 2012, this implies earnings of $6.84 to $7.09 per share for next year. Wall Street currently expects $6.88 per share, so I expect to see that rise.

AFLAC also announced a 6.1% increase to its quarterly dividend. This is the 30th year in a row that AFLAC has raised its payout. Not many companies can say that. The quarterly dividend will rise by two cents to 35 cents per share, and right now that’s about a 2.8% dividend yield.

This is basically what I said would happen two months ago, but the stock market was expecting more. The initial disappointment, combined with the broader market sell-off, probably caused the shares to pull back some.

Don’t be fooled. AFLAC is a very strong company.

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