Dividend Aristocrats – or companies that have consistently raised their dividends for 25 years or more – are almost guaranteed safe havens for dividend investors.
But we always want to take a deeper dive to make sure their payouts are actually secure.
Aflac Inc. (NYSE: AFL) is a $40 billion insurance company and a 2.5%-yielding Dividend Aristocrat that has upped its dividend for the last 39 years.
Businesses use Aflac to offer employees high-quality benefits. Aflac provides not only regular dental and vision insurance but also insurance for cancer and other life-altering health events.
Like many other companies, Aflac saw a slump after 2020 due to many employees losing their jobs… and therefore their benefits. Free cash flow has been steadily declining, notably dropping from around $6 billion in 2020 to $5 billion in 2021.
And in 2022, the business is still finding its footing. Free cash flow is currently expected to come in at $4.49 billion in 2023 – a far cry from the $6 billion posted in 2020.
But not all is doom and gloom for this Dividend Aristocrat.
Like I pointed out, Aflac has consistently raised its dividend for over three decades, including the last few chaotic years.
On another note, Aflac is estimated to have a payout ratio of only 21% this year. And last year, its payout ratio was a mere 17%. As a reminder, Safety Net prefers a payout ratio of 75% or lower.
Aflac’s low payout ratio leaves the company with not only plenty of room to grow its dividend but also time to get its free cash flow back on track.
Still, if Aflac can’t get free cash flow moving in the right direction, it may go after its dividend first.
All in all, Aflac is keeping its margins so wide that we won’t have to worry too much about a cut. But the dividend safety is worth keeping an eye on.
Dividend Safety Rating: C
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