Thursday, 11 April 2013

A Look at Aflac


One company I’m considering for my next buy is Aflac (AFL-N). As you'll see below, the numbers are compelling.

Average Dividend Yield Analysis*

AFL:US
Year
High Price
Low Price
1Q
div.
2Q
div.
3Q
div.
4Q
div.
Annual Dividend
High Yield
Low Yield
2001
$36.09
$23.00
0.043
0.05
0.05
0.05
$0.19
0.84%
0.53%
2002
$33.45
$23.10
0.05
0.06
0.06
0.06
$0.23
1.00%
0.69%
2003
$36.91
$28.00
0.07
0.07
0.08
$0.08
$0.30
1.07%
0.81%
2004
$42.60
$33.85
$0.095
$0.095
$0.095
$0.095
$0.38
1.12%
0.89%
2005
$49.65
$35.50
$0.11
$0.11
$0.11
$0.11
$0.44
1.24%
0.89%
2006
$49.40
$41.63
$0.13
$0.13
$0.13
$0.16
$0.55
1.32%
1.11%
2007
$63.91
$45.18
$0.185
$0.205
$0.205
$0.205
$0.80
1.77%
1.25%
2008
$68.81
$29.68
$0.24
$0.24
$0.24
$0.24
$0.96
3.23%
1.40%
2009
$47.75
$10.83
$0.28
$0.28
$0.28
$0.28
$1.12
10.34%
2.35%
2010
$58.31
$39.91
$0.28
$0.28
$0.28
$0.30
$1.14
2.86%
1.96%
2011
$59.54
$31.25
$0.30
$0.30
$0.30
$0.33
$1.23
3.94%
2.07%
2012
$54.93
$38.14
$0.33
$0.33
$0.33
$0.35
$1.34
3.51%
2.44%
2013


$0.35
$0.35
$0.35
$0.35
$1.40


Stock prices are per calendar year.
12y ave
2.69%
1.36%
Dividends are recorded in the quarter they were paid.
5y ave
4.78%
2.04%







3y ave
3.44%
2.15%







5y
$29.31
$68.62







3y
$40.75
$65.01






Super Cheap
$13.54


The table shows the 3 year average dividend yield to be 3.44% ((2.86% + 3.94% + 3.51%)/3). I use the numbers in the “High Yield” column for obvious reasons.

Using the current annual dividend of $1.40, one would have to pay $40.75 for a 3.44% dividend yield.

Buying the stock at its low in 2009 would have earned you an initial yield of 10.34%. Using the current annual dividend, that corresponds to a stock price of $13.54 today (see “super cheap” price in the table above).

Graham Price

AFL’s 2010, 2011 and 2012 EPS were $4.95, $4.18 and $6.11. 3Y Ave EPS = $5.08.
AFL’s BV is $34.16.
Graham Price = SQRT (3Y Ave EPS * BV * 22.5) = $62.49

Cyclically Adjusted Price to Earnings Ratio

AFL’s 10Y Ave EPS = $3.43
CAPE = Stock Price / 10Y Ave EPS = $49.81 / $3.43 = 14.5
A CAPE below 20 is good.

Conclusion

Although AFL probably won’t be dropping to my super cheap price any time soon, the stock is trading at a 20% discount to Graham price. Its CAPE is also quite low, which tells me the current stock price is attractive.

AFL increased EPS from $1.28 in 2002 to $6.11 in 2012. That’s an increase of 4.8 times over 10 years. 2013 and 2014 EPS are estimated at $6.87 and $7.06 respectively.  I find AFL’s past growth, projected growth and current P/E of 8.15 ($49.81/$6.11) very attractive.


*My method is not perfect as the stocks low price may have occurred before the annual dividend increase.


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