We recently compiled a list of the 10 Undervalued Dividend Aristocrats To Buy According to Hedge Funds. In this article, we are going to take a look at where Aflac Incorporated (NYSE:AFL) stands against the other undervalued dividend aristocrats to buy according to hedge funds.
A dividend aristocrat is an S&P 500 company that not only maintains regular dividend payments to shareholders but also increases its payouts annually. To qualify as a dividend aristocrat, a company must raise its dividends consistently for at least 25 consecutive years.
Michael Clarfeld, Portfolio Manager at ClearBridge, recently talked about why companies that consistently grow their dividends are well-positioned to handle the challenges of 2025. With rising costs, tighter margins, higher interest rates, and inflation on the horizon, Clarfeld is still optimistic about the economy. He pointed to strong employment numbers, upbeat consumer sentiment, and confident businesses, especially after the election. Pro-business policies under the Trump administration could drive investments and growth, which sounds great, but there’s a catch. For instance, bringing manufacturing back to the US would create jobs and boost wages, but it could also increase business costs. After two strong years, Clarfeld doesn’t see much room for big capital gains in 2025. Plus, with inflation sticking around, the Federal Reserve is likely to take a more cautious approach. That said, he sees opportunities in sectors like European and global consumer staples and US energy infrastructure.
Clarfeld is a big fan of dividend growth stocks, calling them a timeless investment. They can act as a safety net during volatile markets and provide steady income, which is especially useful when capital appreciation feels out of reach. He also highlighted how dividends help protect your purchasing power by keeping up with inflation. In his view, dividend growth is a smart and reliable strategy for navigating a potentially bumpy 2025.
Paul Baiocchi of SS&C ALPS Advisors sees dividend investing as a smart move, expecting the Fed to ease rates. According to Baiocchi, investors are shifting from money markets and fixed income to dividend-paying stocks, especially companies with leverage that could benefit from lower interest rates. Similarly, Mike Akins of ETF Action also sees dividend ETFs as a defensive play, highlighting that the companies included typically have strong balance sheets. He notes the growing popularity of dividend-focused ETFs, suggesting that consistent dividends give investors confidence in a company’s stability and financial health. Both experts agree that dividends offer a sense of durability and drawdown protection in uncertain markets.
A nurse talking on the phone with a client while assisting them in filling out paperwork for a medical insurance policy, demonstrating the company’s dedication to customer service.
Our Methodology
In this article, we selected stocks from the Dividend Aristocrats List that had a P/E ratio below 20 as of December 23. Our focus was on identifying stocks with the strongest hedge fund sentiment in Q3 2024 among the 66 Dividend Aristocrats that also met our P/E criteria. The stocks are ranked below in ascending order based on the number of hedge fund holders for each company.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Aflac Incorporated (NYSE:AFL)
Dividend Yield as of December 23: 2.26%
Number of Hedge Fund Holders: 32
P/E Ratio: 15.26
Aflac Incorporated (NYSE:AFL) offers supplemental health and life insurance products. The company operates in two segments – Aflac Japan and Aflac US. The Aflac Japan segment provides cancer, medical, nursing care, work leave, and various life insurance products, along with saving-type insurance plans. The Aflac US segment offers a range of insurance products, including cancer, accident, disability, critical illness, and long-term care insurance, among others.
Aflac Incorporated (NYSE:AFL) reported a loss of $0.17 per share for Q3 2024, mainly due to the negative impact of foreign exchange losses from the strengthening yen. However, adjusted earnings increased by 17.4% to $2.16 per share. Year-to-date earnings per share were $6.23, with a 13.5% increase in adjusted earnings per share to $5.64.
The company saw solid sales growth in Japan, driven by the launch of Tsumitasu, a product combining asset formation with nursing care, and a 12.3% year-over-year increase in sales. In the US, Aflac achieved a 5.5% increase in sales, with strong growth in Group Life and cancer insurance. Aflac also reported a 20.8% pre-tax profit margin for the quarter. The company repurchased $500 million in shares during the quarter. Despite challenges like remeasurement gains impacting ratios, Aflac’s solid performance and strategic investments ensure its long-term growth trajectory.
On December 2, Aflac Incorporated (NYSE:AFL) announced that its Board has declared a first-quarter dividend of $0.58 per share, payable on March 3, 2025, to shareholders on record as of February 19. This dividend marks a 16% increase from the fourth quarter dividend. Aflac has a 42-year history of consecutive dividend increases, making it one of the best dividend aristocrat stocks to buy.
32 hedge funds tracked by Insider Monkey in the third quarter of 2024 held stakes in Aflac Incorporated (NYSE:AFL), up from 25 funds in the earlier quarter.
Overall, AFL ranks 6th on our list of the undervalued dividend aristocrats to buy according to hedge funds. While we acknowledge the potential of AFL to grow, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AFL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
