This is the second in a series of articles on dividend stocks that fly under the radar, but still provide a growing income stream for retirees and other investors. I previously wrote about W W Grainger (GWW) here. Aflac Incorporated (AFL) stock is the newest addition to the series.
Aflac is the largest supplier of supplemental insurance in the American marketplace. It is also the biggest insurer in Japan, where it derives most of its revenue. Some readers may be only aware of AFL stock through its ads, famous for the quacking duck.
Investors and retirees should know about Aflac for what it actually brings to the table as well.
AFL Stock: Managing Dividend Growth
Aflac is a member of the Dividend Aristocrats, a group of large-cap dividend stocks that have increased the payout annually for at least a quarter-century. In the case of AFL stock, the payment, now at $1.64 per share, and it has gone up every year since 1983. The dividend on Aflac stock has increased by an average of 6.7% annually over the past five years.
AFL has been able to do that in part by employing prudent strategies for the portfolio that backs its insurance policies. Recently, to counteract negative interest rates in Japan, the Columbus, GA-based company increased the equity portion of its Japanese investments by a factor of three in just one quarter, to $493 million. Aflac has also added real estate to the mix by buying Japanese exchange traded funds.
Going forward, Aflac plans to investigate other types of investments such as hedge funds and private equity. Investments in asset classes other than fixed income will grow to about $3 billion over the next few years, the company says. Risk-wise, bonds still comprise the bulk of AFL’s $100 billion portfolio so if rates remain subdued that could be a drag on growth down the road.
Aflac’s Rich Dividend History
The dividend for Aflac stock has also been helped by the company’s ability to keep a lid on debt. Aflac possesses a low total debt-to-equity level of 0.29. There is ample room to increase the dividend as the payout ratio is a modest 26% and earnings should continue to grow. Over the past five years EPS has increased by a compounded annual rate of 15% and analysts have forecast a 6% growth rate for the next half decade. Shares are also presently attractively priced based upon a P/E of about 10, a price to sales ratio of 1.2 and price to book of 1.4.
Retired investors seeking a bit of extra income to supplement pensions, Social Security payments, annuities, bond interest, and part time work may want to look below the radar for unlikely dividend stocks such as the insurer Aflac, which has been boosting the payout annually since 1983. Based upon steps that Aflac is taking, and AFL stock’s current financial metrics, it might not be a bad move to consider the quacking duck right now.
Disclosure: The author currently owns shares of Aflac, Inc.