Recent Buy: April 2014
Looking for value in an overheated market is getting hard. However my job situation is going great and I don’t see my income stopping any time soon so today I bought 24 shares of Aflac for $61.95 a share with a yield of 2.40%. This purchase will add $35.52 to my 12 month forward dividends for an annual total of $600.52. This is a new position for me and I am now currently invested in 12 companies.
Over 50 million people worldwide use Aflac insurance with a heavy concentration in Japan. You probably know them from the commercials with the duck. Yeah yeah, insert duck joke. Aflac’s price has been all over the place in recent years and time will tell if I got in with a good valuation.
Here are some of the many things I like about Aflac:
- It’s a Dividend Aristocrat with 31 years of dividend raises.
- Currency rates are bringing down the valuation to a current P/E of 9.20.
- Even with a decreasing yen, like many times before, Aflac continues solid EPS and ROE growth.
- Management is taking advantage of current prices with share buybacks up to 12%.
So why is the P/E so low?
Aflac’s historical average P/E ratio from 1996 to now has been around 16. Before 2008, the company was consistently trading well above this P/E. Since 2008, even with a lot of great growth, the average P/E has been closer to 11. The current P/E of 9.20 seems to represents a good buying opportunity.
A major concern with Aflac is lack of geographic diversity. About ¾ of the company profits come from Japan. Since the end of 2012, the yen has not been performing well versus the dollar. In the last two years the yen has weakened to the US dollar by almost 26%; right now 102.1750 yen equals a dollar. While researching, I found these rates to be extremely unstable. In fact it seems that prior to 2008 it took many more yen on average to equal a dollar. For instance, in August of 1998, it took 146 yen to equal a dollar; however, only a short year later, 101 yen equaled a US dollar. It seems that in the past Aflac has been through some extreme currency rate fluctuations and has consistently proven it can still grow despite it. On top of this, Aflac only converts a small percentage of yen to US dollars each year. Also, while almost 50% of Aflac’s portfolio is in Japanese debt, Aflac hopes to better diversify in 2014.
I’m expecting a lot of volatility in this stock and on any major pullbacks, I will add to my position. I’m happy to become a shareholder and hope to reap the rewards for years to come.
What are your thoughts on AFL?