Summary
- Aflac Inc. is a leading supplemental health and life insurance company in Japan and the U.S. (68% of their revenues are in Japan). They have a long history of dividend growth, shareholder friendly actions and strong returns. They are facing current headwinds from the Coronavirus pandemic and declining interest rates. Over the next several years these pressures should decline dramatically and growth should resume. Their present compelling valuation coupled with a 2.9% dividend yield (that has grown an average of 7% per year for the last 10 years) provides expectations for market beating returns.
Growth – temporarily challenged and should resume growth in the near future
- Aflac has a long history of consistent revenue growth (albeit slow, in the low single digits) and slightly higher income growth. Revenues and profits have declined slightly recently due primarily to the impact of Coronavirus. I expect when the pandemic is resolved and interest rates normalize, they will experience healthy growth rates again.
Financial Strength – very solid
- Aflac has a very low level of debt relative to their equity and marketable investments and they have been reducing their leverage ratios consistently over the last 10 years
Valuation – extremely compelling
- Aflac presently trades at 93% of book value vs an average over the last 5 years of 135%.
Profitability – excellent
- Consistently strong underwriting profits, excellent return on equity and profit levels vs revenues. They have been profitable in every quarter of the last 19 years.
Other
- Aflac has raised their annual dividend in each of the last 38 years. Directors and officers own $380 million worth of the Aflac’s stock and are highly motivated to increase shareholder value.
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