I love insurance companies. They take in tons of money and they may or may not ever pay out any as claims. They're essentially betting that you'll stay healthy, you're betting you'll get sick. Chances are you'll stay healthy. No one wants to get sick.
In addition, they have the opportunity to invest those funds and make even more money for their shareholders while waiting for a claim to be settled.
I want to be one of those shareholders.
- Aflac has a dividend yield of 2.41% and an expected one year capital gain of 12.78% for an expected total one year return of 15.19%.
- To understand this company is to understand that it's really two companies operating in two different countries and their financials are consolidated into one currency.
- The company is getting back on track after a rough 2013.
- The 10% fall from the stock's high of $66.81 is creating a buying opportunity.
Aflac Incorporated (AFL), through its subsidiary, American Family Life Assurance Company of Columbus, provides supplemental health and life insurance products. The company offers various 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 in Japan. It also offers products designed to protect individuals from depletion of assets, which comprise accident, cancer, critical illness/critical care, hospital intensive care, hospital indemnity, fixed-benefit dental, and vision care plans; and loss-of-income products, such as life and short-term disability plans in the United States. The company sells its products through sales associates and brokers, independent corporate agencies, individual agencies, and affiliated corporate agencies. Aflac Incorporated was founded in 1955 and is headquartered in Columbus, Georgia. (Daily Chart) (Weekly Chart)
27 May 2014
1yr Target $69.18
1yr Cap Gain 12.78%
1yr Tot Return 15.19%
3yr DGR 7.39%
5yr DGR 7.56%
Payout Ratio 21.30%
EPS (ttm) $6.45
EPS next yr $6.57
Almost everyone has seen those Aflac commercials where the Aflac duck runs around quacking while the announcer talks about how Aflac pays its policyholders when they get sick or hurt so that they can pay their everyday expenses. For nearly six decades, Aflac insurance policies have given policyholders the opportunity to focus on recovery rather than financial stress bringing comfort to individuals primarily in both the United States and Japan. In the United States, Aflac is the leading provider of voluntary insurance at the worksite. In Japan, Aflac is the number one life insurance company in terms of individual policies in force. Aflac individual and group insurance products help provide protection to more than 50 million people worldwide.
The best way to understand the fundamentals of Aflac is to look at company as two separate companies - one located in the United States and one located in Japan. By doing so it's easier to understand the profitability of each part of the company. In the end, all revenues and earnings from both parts of the company are translated from yen into dollars and the exchange rate often distorts an understanding of the profitability of the overall company. When the yen is strong, profits are artificially strong in terms of dollars and when the yen is weak, profits are artificially weak in terms of dollars.
Since a substantial portion of Aflac's business is done in Japan and the yen has had a nearly 10% weaker yen/dollar exchange rate recently, the company's results have been flat in 2013. Excluding the impact of currency, the company notes its operating earnings per share would've increased by $0.10, or 6%.
Recent fundamentals on a country specific basis are as follows.
In yen terms, Aflac Japan's premium income rose 1.4% in the first quarter of this year and net investment income increased 9.4%. Investment income growth was magnified by the weaker yen/dollar exchange rate because approximately 45% of Aflac Japan's first quarter investment income was dollar denominated, compared with 40% a year ago. Total revenues were up 2.2% in the first quarter. The pretax operating profit margin increased in the first quarter to 22.0% from 21.5% in the prior year and pretax operating earnings in yen increased 4.6% on a reported basis and 1.5% on a currency neutral basis.
Aflac Japan's growth rates in dollar terms for the first quarter were suppressed as a result of the weaker yen/dollar exchange rate. Premium income decreased 8.8% to $3.6 billion in the first quarter and net investment income was down 1.7% to $663 million. Total revenues decreased 8.1% to $4.2 billion. Finally pretax operating earnings declined 5.7% to $933 million.
In the first quarter, total new annualized premium sales fell 48.7% to ¥27.6 billion, or $268 million. Third sector sales, which include cancer and medical products, increased 1.8% in the quarter.
Aflac U.S. premium income increased 1.1% to $1.3 billion in the first quarter and net investment income was up 2.5% to $161 million. Total revenues increased 1.2% to $1.5 billion. The pretax operating profit margin increased to 20.8% from 19.5% a year ago, reflecting improvements in both the benefit and expense ratios, and pretax operating earnings were $303 million, an increase of 7.9% for the quarter.
Aflac U.S. total new annualized premium sales decreased 4.4% in the quarter to $318 million. Additionally, persistency in the quarter was 73.8%, compared with 74.7% a year ago.
Growth rates for revenues, earnings and dividends are listed below. While revenue and earnings rates seem to be slowing, their rates are very impressive with a 3 year earnings growth rate above 11%. Assuming earnings growth rates continue at this pace, I expect dividends to increase proportionally in the future since payout ratios are already low.
Good Luck and Good Trading.