Some of the world’s best investors stick to dividend portfolios. They know that a steady stream of income is a top wealth building strategy. And finding the best deals is vital. So today, we’re going to review another one of the best dividend stocks around. Let’s take a look at Aflac’s dividend history and safety…
Business Overview and Highlights
Aflac (NYSE: AFL) is a $40 billion insurance provider. The company is based out of Georgia and it employs 11,400 people. Last year Aflac pulled in $22 billion in sales and that works out to $1.9 million per employee.
The company runs within the financial sector and maintains a solid credit rating (A-) from the S&P. This allows Aflac to issue cheap debt to grow the business and pay dividends.
On April 24, 2019, Aflac’s board of directors declared a quarterly cash dividend of $0.27 per share. The dividend was paid on June 3 to shareholders of record at the close of business on May 22.
Aflac’s 10-Year Dividend History
The company paid investors $0.56 per share a decade ago. Over the last 10 years, the dividend has climbed to $1.04. That’s an 86% increase and you can see the annual changes below…
The compound annual growth is 6.4% over 10 years… but over the last year, the dividend climbed 19.5%. The increase in dividend growth is a good sign. Aflac might work out as a great income investment. Let’s take a look at the yield…
Current Yield vs. 10-Year Average
Aflac’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital and we’ll look at that soon.
The dividend yield comes in at 1.99% and that’s below the 10-year average of 2.81%. The chart below shows the dividend yield over the last 10 years…
The lower yield shows that investors have bid up the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.
Improved Dividend Safety Check
Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So, a payout ratio of 60% would mean that every $1 Aflac earns, it pays investors $0.60.
The payout ratio is a good indicator of dividend safety… but accountants can manipulate net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.
Here’s Aflac payout ratio based on free cash flow over the last 10 years…
The ratio is volatile over the last 10 years and the trend is up. The last year shows a payout ratio of 13.3%. This gives plenty of wiggle room for Aflac’s board of directors to raise the dividend.
If you’re interested in seeing more dividend research, please comment below. You can also check out our free DRIP calculator. With it, you can uncover the power of dividend reinvestment growth.
Also, if you are planning your retirement make sure to use our retirement readiness calculator. It will help you find out if you’re on track for a wealthy retirement.
Good investing,
Robert
