{"id":83308,"date":"2023-11-11T04:40:17","date_gmt":"2023-11-11T09:40:17","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/aflac-the-time-isnt-right-to-buy-this-must-own-dividend-aristocrat-nyseafl\/"},"modified":"2023-11-11T04:40:27","modified_gmt":"2023-11-11T09:40:27","slug":"aflac-the-time-isnt-right-to-buy-this-must-own-dividend-aristocrat-nyseafl","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=83308","title":{"rendered":"Aflac: The Time Isn’t Right To Buy This Must-Own Dividend Aristocrat (NYSE:AFL)"},"content":{"rendered":"
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A businessman puts money into his suit pocket.<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

The legendary supplemental insurer Aflac (NYSE:AFL<\/span>) is a perfect example of two reasons why dividend growth investing is my predominant investing strategy. Without further ado, let’s elaborate on that statement.<\/span><\/p>\n

When Aflac shared its third-quarter earnings on Nov. 1, it dropped a big, beautiful bombshell on shareholders: The company boosted its quarterly dividend per share by a whopping 19% to $0.50. Putting this into perspective, I was only expecting a 4.8% raise to $0.44!<\/p>\n

So, for one, amazing businesses like Aflac can wildly exceed your expectations for dividend growth. Secondly, where else are you going to get a 19% raise?<\/p>\n

From your day job? If you pour your heart and soul into it, maybe you’ll get that lucrative promotion. But even then, it’s pretty unlikely that you’ll get that big of a pay raise. The best part is that simply owning shares in great businesses requires very little effort. Beyond the initial phase of securing capital to invest in such a business and occasionally checking in on fundamentals, there’s no work to be done.<\/span><\/p>\n

Since my previous article on Aflac in October, let’s reassess the company’s fundamentals and valuation to highlight why I am keeping my hold rating for now.<\/p>\n

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\"AFL<\/span> <\/picture>
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DK Zen Research Terminal<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Aflac and its 2.5% dividend yield may not be able to shower you with huge starting passive income. But the Dividend Aristocrat makes up for this lower income with a very safe 31% EPS payout ratio. This is well under the 50% that rating agencies view as sustainable for insurers per Dividend Kings.<\/p>\n

Aflac is also a financially sound business. The company’s 19% debt-to-capital ratio is just below the 20% that rating agencies consider to be solid. Perhaps it’s no surprise then that Aflac’s corporate credit rating is A- from S&P on a stable outlook. This signals that the risk of the company not being around in 2053 is merely 2.5%.<\/p>\n

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\"AFL<\/span> <\/picture>
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DK Zen Research Terminal<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

The only thing I don’t particularly like about Aflac right now is its valuation. An average of Dividend Kings’ fair values peg Aflac to be worth $74 a share, which is 9% less than the current $81 share price (as of November 10, 2023).<\/p>\n

My fair value estimate using the dividend discount model is $73 a share, which is 12% above the current share price. I arrived at this fair value by using the annualized dividend per share of $2, a 10% discount rate, and a 7.25% annual dividend growth rate for the long haul.<\/p>\n

Averaging these fair values together, I get a fair value of about $74 a share. Assuming Aflac meets the analyst growth consensus and returns to fair value, these are the total returns the company could deliver in the coming 10 years:<\/p>\n