AFL

[Dividend Watcher]

(04-20-2016, 11:00 AM)Kerim Wrote: The fundamentals of AFL always look pretty compelling to me, but then year after year after year, they give us uninspiring dividend raises and we never see any expansion of the valuation. I hold some, and think it is an excellent and conservatively-run company, but it is hard for me to get excited about buying more shares. I'd probably need an even bigger bargain than usual to load up more.

Kerim brings up some good points.

As to the stock, obviously Kerim is looking more for total return whereas I am very comfortable that steady, "uninspiring" dividend growth rate of 5-7% year in and year out. It's circling around my long-term goal of 6% dividend income growth every year to beat inflation over the long term. I'm guessing their days of low-teens dividend increases are behind it. AFL is a bigger company now, Japan's birth rate has dropped considerably contributing to the rapid aging of their population and they still face headwinds of repatriating Yen back to the U.S. with the tax rates as they are. Because of those reasons, I'm guessing that a P/E of around 11-12 is a justified level and it's not going to undergo a huge margin expansion for a while.

Even better, for me, is that the price has been bouncing around in a trading range of $55 to $65 for the last few years. For me, it can do that as long as it wants as I keep reinvesting the dividends. These 52 week new highs are breaking out to the high side of the range which bugs me a little and would be glad if it pulled back to the low 60s. The only sticking point for me is the lower initial yield of around 2.5%. However, another 10 years of reinvesting and steady increases to the dividend would be a nice cornerstone to my dividend income stream.

The company itself is facing some headwinds which I mentioned above. So far, management has been pretty adept at handling it. Debt/Equity is still only around 35%. They have almost as much cash on hand as their total debt so they have breathing room there. I mentioned it elsewhere that their U.S. sales force has been more aggressive both with individual policies and with very small businesses. I don't think AFL is going to wind up going broke or cutting the dividend.

So, is AFL going to make you fabulously rich in a short period of time? No, I doubt it. Would I buy it here? No, I'd wait till it pulled back to the low 60s (at least) but a case could be made for opening small position here if you have a few years. Valuation is much better than a lot of the other blue chips at this stage of the market and economy.

Just my thoughts.