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Aflac Is Still Quacking
12/10/2007 12:00 am EST
Charles Carlson, editor of the DRIP Investor, says the leading insurer has a strong business and solid earnings and dividend growth.
Stocks that hold up well during rocky market periods tend to be leaders when markets resume their upward move. One stock that has shown excellent relative strength in recent trading is Aflac (NYSE: AFL). This leading insurance concern, with the well-known (and maybe even a little annoying, but always memorable) duck for its mascot, is trading just off its 52-week high of $63.25.
Aflac is the number-one provider of “guaranteed renewable” insurance in the US and the number-one provider of individual insurance policies in force in Japan. The firm insures more than 40 million people worldwide. Products include supplemental insurance, such as medical, accident/disability, and long-term care. The company has more than 90,000 licensed sales associates selling insurance in Japan and more than 68,000 licensed sales associates in the US. Many customers buy the policies through payroll deduction at their place of employment.
Japan operations typically account for more than 70% of revenues and profits. Aflac’s business is showing strength in both the US and Japan. In the third quarter, Japan premium income in yen rose 4.2%. Cancer insurance sales were quite strong for the quarter, rising nearly 22%. US business premium income increased nearly 11% in the quarter. Accident/disability products and cancer-expense insurance led sales in the US.
Aflac’s products should see good demand as co-payments and deductibles are likely to increase for US and Japanese workers over the next several years. The company offers the type of stability and consistency that investors crave, especially during uncertain economic and financial times.
The company’s per-share profits have beaten expectations in each of the last three quarters, and record per-share profits are slated for 2008. The company is confident of increasing operating earnings per share by 15% to 16% this year and 13% to 15% in 2008.
From a dividend perspective, there’s a lot to like. Dividends have increased for 25 consecutive years, and dividend growth has been impressive. Dividends have grown nicely this year, with two increases in 2007. The current quarterly rate is $0.205, providing an indicated yield of 1.3%. With the consensus earnings estimate of $3.80 per share in 2008, look for the firm to give shareholders a generous dividend boost next year.
Finally, the company has an extremely investor-friendly dividend reinvestment plan, including direct purchase for initial shares, and no fees on the buy side. The stock offers a true “steady eddy” performer and represents a cornerstone holding for any DRIP portfolio.
Minimum initial investment in Aflac’s direct-purchase plan is $1,000. Subsequent investments may be as little as $50. There is no enrollment fee and no ongoing purchase fees. The stock represents a quality buy at current prices. (It closed just below $62 Friday—Editor.)