Dividend Aristocrats In Focus: Aflac

Up to date on March seventh, 2025 by Nathan Parsh

Insurance coverage could be a nice enterprise. Insurers gather income from coverage premiums and earn cash by investing the collected premiums not paid out in claims, referred to as the float.

Even legendary investor Warren Buffet sees the worth of insurance coverage shares –his funding conglomerate Berkshire Hathaway (BRK.A) (BRK.B) owns GEICO, Common Re, and extra.

Excessive profitability permits many insurance coverage firms to pay dividends to shareholders and lift their dividends over time. For instance, Aflac (AFL) has elevated its dividend for 43 years in a row.

This implies the corporate qualifies as a Dividend Aristocrat – a gaggle of 69 firms within the S&P 500 Index with 25+ consecutive years of dividend will increase.

You possibly can obtain a free record of all 69 Dividend Aristocrats, together with essential metrics like dividend yields and price-to-earnings ratios, by clicking on the hyperlink under:

Disclaimer: Positive Dividend isn’t affiliated with S&P International in any manner. S&P International owns and maintains The Dividend Aristocrats Index. The knowledge on this article and downloadable spreadsheet relies on Positive Dividend’s personal assessment, abstract, and evaluation of the S&P 500 Dividend Aristocrats ETF (NOBL) and different sources, and is supposed to assist particular person traders higher perceive this ETF and the index upon which it’s based mostly. Not one of the data on this article or spreadsheet is official information from S&P International. Seek the advice of S&P International for official data.

This text will take an inside take a look at Aflac’s enterprise mannequin and what drives its spectacular dividend progress.

Enterprise Overview

Aflac was shaped in 1955 by three brothers: John, Paul, and Invoice Amos. Collectively, they got here up with the concept to promote insurance coverage merchandise that paid money if a policyholder acquired sick or injured. Within the mid-twentieth century, office accidents had been frequent, and no insurance coverage product coated this danger.

At the moment, Aflac provides a variety of merchandise, together with accident, short-term incapacity, vital sickness, hospital indemnity, dental, imaginative and prescient, and life insurance coverage.

The corporate focuses on supplemental insurance coverage, which pays out to policyholders if they’re sick or injured and can’t work. Aflac operates within the U.S. and Japan, with Japan accounting for roughly ~55% of the corporate’s web earned premiums. Due to this, traders are uncovered to forex danger.

Aflac’s earnings will fluctuate based mostly on alternate charges between the Japanese yen and the U.S. greenback. When the yen rises towards the greenback, it helps Aflac as a result of every yen earned turns into extra beneficial when reported in U.S. {dollars}.

Aflac’s technique is to extend premium progress by way of new clients and improve gross sales to present clients. It’s also investing in increasing its distribution channels, together with its digital footprint, within the U.S. and Japan.

Aflac continues to carry out effectively general. On February fifth, 2025, Aflac launched fourth-quarter and full-year monetary outcomes.

Supply: Investor Presentation

For the quarter, the corporate reported $5.4 billion in income, which was a 42.1% improve in comparison with This autumn of 2023. Internet earnings equaled $1.9 billion, or $3.42 per share, in comparison with $268 billion, or $46 per share, within the prior yr.

Nonetheless, this included $1 billion in funding good points, that are excluded from adjusted earnings. On an adjusted foundation, earnings-per-share equaled $1.56 versus $1.25 within the prior yr. Income was $1.24 billion greater than anticipated, whereas adjusted earnings-per-share was $0.06 under estimates.

For 2024, income improved 1.2% to $18.9 billion, and adjusted earnings-per-share had been $7.21 in comparison with $6.23 within the prior yr.

Aflac has additionally aggressive decreased its share depend, repurchasing seven million shares at a mean worth of ~$107 in This autumn 2024. The corporate has 47.3 million shares, or 8.6% of its excellent share depend, remaining on its repurchase authorization.

Development Prospects

From 2007 by way of 2020, Aflac grew earnings-per-share by a mean compound charge of 8.8% per yr, though a part of that enchancment is expounded to tax reform. Additionally, do not forget that the Yen was typically weakening towards the greenback for a great portion of the final decade.

During the last 10 years, the corporate’s earnings-per-share had a CAGR of 9.9%, although that progress charge has slowed to six.9% over the earlier 5 years.

In Japan, Aflac needs to defend its sturdy core place whereas increasing and evolving to buyer wants. Thus far, Aflac Japan is increasing its “third-sector” product choices. These embody non-traditional merchandise comparable to most cancers insurance coverage and medical and revenue help.

Aflac has loved sturdy demand in Japan for third-sector merchandise because of the nation’s growing old inhabitants and declining start charge.

Aflac has two sources of income: revenue from premiums and revenue from investments. The premium aspect is usually sticky, with coverage renewals making up the majority of revenue. Nonetheless, Aflac operates in two developed markets the place we might not anticipate seeing outsized progress within the enterprise.

The opposite lever obtainable is on the funding aspect, the place many of the portfolio is in bonds. As well as, the share repurchase program has been an essential issue, and we consider it can proceed to drive earnings per share.

We’re forecasting 7% annual progress charge over the following 5 years.

Aggressive Benefits & Recession Efficiency

Aflac has many aggressive benefits. First, it dominates its area of interest. It operates in supplemental insurance coverage merchandise and is the main firm in that class. Its enterprise mannequin requires low capital expenditures and sells a product that enjoys regular demand.

Aflac’s sturdy model is a key aggressive benefit. Competitors is intense within the insurance coverage business, contemplating the commodity-like nature of the merchandise. To retain clients and appeal to new clients, Aflac invests closely in promoting.

Aflac can also be a recession-resistant firm. It remained worthwhile even through the Nice Recession:

• 2007 earnings-per-share of $1.64
• 2008 earnings-per-share of $1.31 (-20% decline)
• 2009 earnings-per-share of $1.96 (49.6% improve)
• 2010 earnings-per-share of $2.57 (31.1% improve)

Notably, Aflac had a troublesome yr in 2008, which is comprehensible given the deep recession on the time. Nonetheless, its earnings-per-share got here roaring again in 2009 and 2010. Extra just lately, the corporate continued to develop even through the worst COVID-19 pandemic. Aflac’s earnings-per-share have elevated or remained steady during the last 10 years.

Valuation & Anticipated Returns

During the last decade, shares of Aflac have traded palms with a mean P/E ratio of roughly 11x instances earnings.

We consider this is kind of honest worth for the safety, contemplating that many insurers commerce at a comparable a number of. This decrease common valuation a number of makes the sturdy share repurchase program more practical.

Ongoing homeowners are a lot better served if the corporate buys out previous companions at 11x instances earnings versus, say, 15x—or 20x instances earnings.

Primarily based on 2025’s anticipated earnings-per-share of $6.93, shares are presently buying and selling palms at 15.6 instances earnings. As such, this means an annual valuation headwind of 6.7% ought to shares revert to 11 instances earnings over the following 5 years.

As well as, the 6% progress charge and a pair of.1% beginning dividend yield ought to support shareholder returns. When all three parts are mixed, this means the potential for two.6% annualized returns.

Aflac’s dividend seems very secure, with an anticipated dividend payout ratio of 33% for 2025. The dividend has room for future will increase even when EPS progress slows. The dividend has a CAGR of 10.9 since 2015, however this progress charge accelerates to fifteen.7% during the last 5 years.

Last Ideas

Aflac is a high-quality firm with a worthwhile enterprise and a powerful model.

The corporate has elevated its dividend for 43 years in a row. Due to a low payout ratio and future earnings progress, it ought to proceed to take action.

Aflac isn’t a high-dividend inventory, with a present yield of two.1%. Nonetheless, it provides regular dividend will increase and a extremely sustainable payout.

Nonetheless, shares are at present buying and selling larger than the corporate’s historic valuation. This leads to low single-digit complete returns anticipated over the following 5 years, so the safety earns a promote ranking.

In case you are concerned with discovering high-quality dividend progress shares appropriate for long-term funding, the next Positive Dividend databases shall be helpful:

The most important home inventory market indices are one other strong useful resource for locating funding concepts. Positive Dividend compiles the next inventory market databases and updates them month-to-month: