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The Recently Recommended Monthly Stock Special
Recently Recommended

The recently recommended company is *AFLAC Inc. (AFL)

Company Information:

Founded in 1955 and headquartered in Columbus, Georgia, Aflac Incorporated (American Family Life Assurance Company) provides voluntary supplemental health and life insurance products. It operates through two segments, Aflac Japan and Aflac U.S. The Aflac Japan segment offers voluntary supplemental insurance products, including cancer plans, general medical indemnity plans, medical/sickness riders, care plans, living benefit life plans, ordinary life insurance plans, and annuities in Japan. The Aflac U.S. segment provides products designed to protect individuals from depletion of assets comprising accident, cancer, critical illness/care, hospital indemnity, fixed-benefit dental, and vision care plans and loss-of-income products, such as life and short-term disability plans in the United States. The company sells its products through sales associates and brokers, independent corporate agencies, individual agencies, and affiliated corporate agencies.

 

Its current total market capitalization of $39.2 billion makes AFL a large capitalization stock (a large-cap stock has a market capitalization value of more than $10 billion) with a long history of consistent earnings growth and dividend payments. It is considered a solid business with a durable competitive advantage over its rivals, which enjoys a solid management and corporate culture. According to Yahoo! Finance, consensus estimates call for the company to earn about $4.43 per share this year, up from $4.16 per share last year, and to go to about $4.48 per share next year. AFL has paid dividends to investors since 1973, and has increased its payments for 36 consecutive years, which makes it a dividend aristocrat. During the past five years it has increased its dividends at an average rate of 7.75%, with its quarterly payment of 27 cents currently providing a yield of 2.03%.

 

The value of dividends reinvestment: A hypothetical investment in Aflac has grown cumulatively (including dividends reinvested) 71,197.90% during the past forty years. The same investment has grown only 23,756.43% during the same period of time, excluding dividends. During the same period, a hypothetical investment in the S&P 500® index (thru the Vanguard 500 Index Admiral (VFIAX) has grown cumulatively (including dividends reinvested) 8,151.68%. The stock exhibits a healthy Dividend Payout Ratio (DPR is the proportion of earnings paid out as dividends to shareholders) of 26.0%, which means the company is paying out only 26.0% of all its net income in dividends, and is retaining a large percentage of its earnings to reinvest or grow the business. Its average DPR during the past five years is 24%.

 

Its current Price to Earnings ratio (P/E --a measure of valuation) of 13.20 is 42% below the S&P 500® index, and the forward P/E ratio is 12.02. Its Price to Book ratio of 1.33 is 56.3% below the US Market index. Its Price to Sales ratio (P/Sales) of 1.84 is 12.4% below the index, and its Price to Cash Flow of 7.13 is 46.2% below the index. According to Morningstar, the stock is currently trading 2.1% below its Fair Value Estimate.

 

Technically (from the chart’s perspective) AFL also looks attractive, trading 7.0% below its 52 weeks high, while it is forming a price consolidation pattern between $57 and $48 approximately, in which $48 is acting as a strong technical support level. The index funds Vanguard Total Stock Market Index and Vanguard 500 Index are its biggest shareholders, holding 2.8% and 2.0% of its shares respectively. The stock is also one of the 63 holdings of the mutual fund managed by Moneypaper Advisors, the MP 63 Fund (DRIPX). Aflac’s main competitors are MetLife Inc. (MET) and Prudential Financial (PRU).

 

Volatility and risks: AFL’s five-year Beta (a measure of the volatility, or systematic risk in comparison to the market as a whole as evidenced by the S&P 500® Index) is 0.70, so the stock is 30% less volatile than the Market. Best and worst years during the past 40 years: Its best year was 1982, in which AFL returned, excluding dividends, 100.00%. On the flip side, its worst year was 2001, when the stock declined 31.95%, excluding dividends. AFL’s Dividend Reinvestment Plan charges no fees for cash investing, dividend reinvestment, safekeeping, automatic investment or termination of the plan. With the stock being fundamental and technically attractive, this company is an appropriate holding for investors who wish to build a holding over the long term.

 

Disclosure: Mario Medina has no position in Aflac Inc., and has no plans to initiate any position in the immediate future. However, the author is the co-manager of the MP 63 Fund (DRIPX), which does hold a position in the company. The author wrote the article himself and it expresses his own opinions. The author has no business relationship with AFL and this article is not intended as a recommendation to invest as the information published does not take into account any subscriber's personal finances, goals or risk tolerance. Accordingly, you should be aware of all the risks associated with any financial investment and should consult an independent financial advisor for any personal investment advice.

 

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