2. Aflac Incorporated (NYSE: AFL)
Number of Hedge Fund Holders: 33
Dividend Yield: 2.34%
Number of Years of Consistent Dividend Increases: 39
Payout Ratio: 14.6%
Aflac Incorporated (NYSE: AFL) provides supplemental health and life insurance products. It ranks 2nd on our list of dividend aristocrats with payout ratio less than 55%.
Goldman Sachs raised the price target on shares of Aflac Incorporated (NYSE: AFL) to $47 this May.
In the second quarter of 2021, Aflac Incorporated (NYSE: AFL) had an EPS of $1.59, beating estimates by $0.31. The company’s revenue was $5.56 billion, up 2.9% year over year and beating estimates by $197.02 million. Aflac Incorporated (NYSE: AFL) has gained 17.18% in the past 6 months and 32.18% year to date.
By the end of the second quarter of 2021, 33 hedge funds out of the 873 tracked by Insider Monkey held stakes in Aflac Incorporated (NYSE: AFL) worth roughly $268 million. This is compared to 36 hedge funds in the previous quarter with a total stake value of approximately $343 million.
Madison Funds, an investment management firm, mentioned Aflac Incorporated (NYSE: AFL) in its second-quarter 2021 investor letter. Here’s what they said:
“This quarter we are highlighting Aflac (AFL) as a relative yield example in the Financial sector. AFL is a leading provider of life and supplemental medical insurance in Japan and the U.S. AFL products offer financial protection against loss of income for policy holders based on qualifying health events. Aflac Japan generates approximately 70% of total revenues, and the company has dominant market share in Japan. In the U.S., AFL provides voluntary insurance for policy holders at businesses with products sold through payroll deduction by its large sales force which sells primarily through face-to-face interactions. We believe AFL’s dominant market position in Japan and its large U.S. sales force create a sustainable competitive advantage for the company.
Our thesis on AFL is that its sales will recover from the impact of the COVID pandemic, and it will return significant amount of capital to shareholders. Sales were negatively impacted in both Japan and the U.S. but appear to be in early stages of recovering. We believe sales will improve further as economies open and new products are introduced in Japan. In the U.S., agents will be able to return to face-to-face interactions as people get vaccinated, something that was restricted last year.
In terms of capital returns, AFL committed to returning $8-9 billion between 2020-2022, which is expected to be 75% of operating earnings. The company returns capital via share buybacks and dividend increases. AFL is a Dividend Aristocrat that has increased its dividend 39 years in a row including 10% annually over the last five years; it also recently announced an 18% dividend increase. Other favorable attributes include an A- rated balance sheet by Standard and Poor’s and an attractive valuation with a relative yield near the high end of its historical range.
We believe its valuation is cheap with its forward expected Price/Earnings (P/E) ratio just 9x and a relative P/E of 0.4x versus the S&P 500 despite an industry leading return on equity. At the time of purchase, AFL had a dividend yield of 2.5% and its relative dividend yield vs. the S&P 500 was 1.8x, as shown. Some risks to the thesis include a prolonged economic downturn, loss of market share due to unsuccessful new product roll outs and potential losses in its investment portfolio.”
