Aflac: Financial sector, accidental and health insurance industry
Aflac (AFL) provides supplementary health and life insurance products in the United States. It recorded an impressive revenue growth in fiscal 2016, driven by growth in its Japanese and US insurance segments. EPS (earnings per share) growth reflects top-line growth as well as share buybacks.
Revenues for the first half of 2017 fell due to a slowdown in Japan’s insurance business, partially offset by the US insurance business. The decline was due to the weakening of the yen against the dollar. However, lower operating and interest expenses and share buybacks contributed to EPS growth for the period.
In the graph below, we can see Aflac’s dividend yield compared to the S&P 500 and Assurant (AIZ). (The asterisk in the graph denotes an approximation in calculating dividend yield.)
This year marks the company’s 35th successive year of dividend growth. Its operating cash flow has shown a declining trend over the years due to a decline in net earnings and higher policy acquisition costs. Its dividend yield was on a growing trajectory before falling short of the S&P 500 in 2017.
The company’s PE (price-to-earnings) ratio of 12.4x compares to a sector average of 22.3x. The dividend yield of 2.1% compares to a sector average of 1.9%. In the graph below, we can see Aflac’s price movement compared to the S&P 500 and Assurant.
Aflac reaffirmed its fiscal 2017 earnings outlook, driven by EPS growth in the first half of 2017. The company is expecting a CAGR (compound annual growth rate) of 4.0%–6.0% in 2017 sales from Aflac Japan. It’s expecting a CAGR of 3.0%–5.0% from Aflac US premium sales.
The Vanguard Dividend Appreciation ETF (VIG) offers a dividend yield of 2.1% at a PE ratio of 23.5x. The sectoral diversified ETF has a substantial exposure to industrials. The iShares Select Dividend (DVY) offers a dividend yield of 3.1% at a PE ratio of 20.3x. The diversified ETF has a substantial exposure to utilities.