Four Dividend Champions On Sale

AFLAC Incorporated (NYSE:AFL) is the world’s largest underwriter of supplemental cancer insurance, which it sells through independent and corporate agencies and bank and post offices in Japan. Also sells life, health, Medicare supplement, accident, and long-term convalescent care policies. The company raised its quarterly dividend by 4.90% to 43 cents/share. This action extends the streak of annual dividend increases for Aflac to 34 years in a row. Over the past decade, AFLAC Incorporated (NYSE:AFL) has boosted its dividend by 13.60%/year. Over the past five years however, this dividend champion has only managed to boost dividends at a rate of 6.70%/year. It is attractively valued at 11.20 times earnings and a current yield of 2.50%. Check my analysis of Aflac for more information.

Dividend growth has been slowing down for Aflac in recent years, due to softer earnings per share. Since 70% of the company’s business originates in Japan, its US dollar earnings are susceptible to fluctuations in the Japanese Yen. The other challenge for Aflac is investing its insurance premiums in the low interest environment worldwide. Negative interest rates in the land of the rising sun are not helping out either. If interest rates increase, this would definitely help AFLAC Incorporated (NYSE:AFL) grow its bottom line much faster. On the other hand, the company’s future growth will also be dependent on new product offerings and expanding its distribution channels in order to sell more policies (while also maintaining a focus on policy profitability as well).

The last company is not attractively valued by any measure. In fact, a lot of investors believe the company to be massively overvalued. Nevertheless, I am including this company, because it is a widely held dividend champion which recently raised its quarterly dividends. This move defied investor expectations. I have observed many investors who sold out of the stock earlier this year after oil prices declined, because they probably allowed negative news and fears of a possible dividend cut to influence them into selling. The company is Chevron Corporation (NYSE:CVX). It recently raised its quarterly dividend by a penny to $1.08/share. Chevron is a dividend champion, which has managed to boost dividends for 29 years in a row. Given the earnings estimates of $1.19/share for 2016 and $4.45/share for 2017, I view the stock as overvalued. When energy prices are low, earnings per share are also depressed from one-time asset impairments. From an operational perspective however, low energy prices could provide the opportunity to acquire producing assets at a value price.

My historical analysis of Exxon Mobil Corporation (NYSE:XOM) showed that those ugly financials may not be a good reason to sell an integrated energy company, due to the cyclical nature of prices. In other words, when financials look ugly, this is after prices have fallen. If prices rebound, the financials will likely look better. That being said, if energy prices stay low, companies like Chevron Corporation (NYSE:CVX) may have to do the unthinkable and cut distributions. Even using the optimistic earnings of $4.45 for 2017, the dividend is not well covered. I would continue holding on to Chevron Corporation (NYSE:CVX), but would allocate dividends elsewhere. Unfortunately, the 4.20% yield is not sustainable at current levels. If you buy the stock today, you’d better hope for higher oil prices down the road.

Thank you for reading!

Full Disclosure: Long VFC, AFL, ABBV, CVX, ABT, XOM, VOD, and short AT&T puts

Additional Links:

(1) http://www.dividendgrowthinvestor.com/2012/02/does-entry-price-matter-to-dividend.html

(2) http://www.dividendgrowthinvestor.com/2014/09/selling-puts-pros-and-cons-for-dividend.html

(3) http://www.dividendgrowthinvestor.com/2013/01/vf-corporation-vfc-dividend-stock.html