American Family Life Assurance Company-AFLAC (AFL) Stock Analysis Pollie Style for May 2020.
I already own this company in my Vrijheid Fonds. And I want to try to make a new analysis of all my shares every year, and it has been almost 2 years since I looked into 3M
For my analysis I use a lot of data from the Internet and from the company itself. But most data I get from the famous CCC-list, which was created by David Fish and is now maintained by Justin Law.
This analysis is on Aflac Inc (AFL).
Aflac Incorporated (Aflac) is a general business holding company and acts as a management company, overseeing the operations of its subsidiaries by providing management services. Its business is supplemental health and life insurance, through its subsidiary, American Family Life Assurance Company of Columbus, which operates in the United States and as a branch in Japan. Aflac’s insurance business consists of two segments: Aflac Japan and Aflac U.S. Aflac Japan sells voluntary supplemental insurance products, including cancer plans, general medical indemnity plans, medical/sickness riders, care plans, living benefit life plans, ordinary life insurance plans and annuities. Aflac U.S. sells voluntary supplemental insurance products including loss-of-income products and products designed to protect individuals from depletion of assets (hospital indemnity, fixed-benefit dental, vision care, accident, cancer, critical illness/ critical care, and hospital intensive care plans).
Can I explain this to a 10-year old? What Does This Company Do?
Aflac is a company that sell insurances in the US and in Japan. They are the largest insurance company overall in Japan. They sell health insurances (e.q. dental – so you dentist bill will be paid) and insurances that your Mom and Dad will get paid even when they are sick.
Dividend Aristocrat: Aflac is paying Dividend for 38 years in a row! And is a Dividend Champion. It’s number 69 on the CCC-list form David Fish! That’s a Pass!
Dividend Yield > 2.5%: The dividend Yield of AFL is 3.12%. It’s above the industry average of 1.38% and higher than their 5 years average (2.27%). The yield exceeds the requirements of the Pollie-Code, and therefore Aflac Passes the second Pollie-code
Dividend payout <70%: The current dividend is $1.12 and AFL has an earnings projection of around $4.42. The dividend payout is roughly 25%. This is way below the maximum ratio. This also means that they can keep those dividend increases coming for a long, long time. And that makes me happy! So also Passed for this point.
DGR 1 year > 0%: The dividend growth rate for 1, 3, 5 en 10 years are 3.8, 9.2, 7.9 and 6.8. This shows a healthy (expected) increase over the years. A 3 years average over 9% makes me excited. So, it is also a Pass for the fourth Pollie-code.
P/E-ratio < 15: This is an easy metric that is well documented. It can be used as a quick metric to identify stocks that may potentially be undervalued. I use this to identify stocks that may be discounted compared to the overall stock market. Aflac has a current P/E ratio of 8.4. The industry average is 19. The P/E ratio is lower than its 5-years average (10.8). I like what I see here, a Dividend Aristocrat with a low P/E ratio. This is another Pass on the Pollie-code.
EPS > 0: The EPS is 4.42. So, AFL also Passed the sixth Pollie-Code
ROE > 10%: Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. The current ROE is 11.70%. Yes, another Pass.
Market Cap. > 100M: No problem at this point. More than $ 27.240 Mil. Another Pass.
Chowder Rule > 12: Named after “Seeking Alpha” member Chowder. This is a method of identifying candidates for purchase based on a combination of yield and (5-year) dividend growth rate. When the sum of these elements is above 12%, the company presents an attractive entry point (8% for utilities). When the figure is above 8%, an existing holding is still considered worthy of being retained. The current Chowder rule is 10.9. This is just below the requirements of the Pollie-Code. This is therefore a Fail on the Pollie-code.
Stock price 52wk high-25%: The 52 wk high and low are: 56.30 and 23.07. This means that AFL will be in my buying zone when the stock price is below 47.99 ((56.30-23.07)*0,75 + 23.07). At this moment AFL is trading for $36.26. Therefore, AFL is in my buying zone and it is a Pass on the Pollie-Code.
Other Key Figures
Beta: I think it’s important to have low Beta stocks in my portfolio. This helps to have a stable income all the time, even when the market has a rapid decline. The Beta for AFL is 0.91.
Debt/Equity ratio: The debt to equity ratio is a simple formula to show how capital has been raised to run the business. As an investor I look at the Debt/Equity-ratio to look how risky it is to invest in that company. The higher the debt to equity ratio, the riskier the investment. The Debt/Equity ratio of AFL is around 0.22. I like this number.
Net debt/Ebitda: The net debt to EBITDA ratio is a debt ratio that shows how many years it would take for a company to pay back its debt if net debt and EBITDA are held constant. If a company has more cash than debt, the ratio can be negative. This metric tells something about the health of the company. I like to see ratios below 3 and will be ecstatic with ratios below 1. The Net Debt/EBITDA ratio of Aflac is around 1.47. Again, I like what I see here.
When I look at the analysis, Aflac passed 9 out of 10 from the Pollie-code. The Pollie-code only failed at the at the ROE. I especially like the low debt and low P/E together with the low payout ratio.
If I look at this analysis, I’m still happy to be an owner of this company. And with today’s stock prices it presents a buying opportunity for income investors. I will definitely leave AFL on my watch list for some extra stocks in the near future. I love good quality stocks with a nice dividend yield and a good DGR.
What do you think of Aflac? Is it a buy? Do you own it?
Please comment on my analysis and thanks for stopping by!
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