Why Aflac (AFL) is a great dividend stock right now

Whether it’s stocks, bonds, ETFs, or other types of securities, all investors like to see their portfolios earn high returns. But for income investors, generating consistent cash flow from each liquid investment is your primary goal.

While cash flow can come from bond interest or other types of investments, income investors focus on dividends. A dividend is the distribution of a company’s earnings paid to shareholders; it is often looked at by the dividend yield, a measure that measures a dividend as a percentage of the stock’s current price. Many academic studies show that dividends account for a large portion of long-term returns, and in many cases, dividend contributions exceed one-third of total returns.

I’m in Focus

Based in Columbus, Aflac (AFL) is in the financial sector, and so far this year, the stock has seen a price change of 8.93%. The insurer currently pays a dividend of $0.5 per share, with a dividend yield of 2.23%. This compares to the Insurance – Casualty & Health industry return of 2.28% and the S&P 500 return of 1.57%.

Looking at dividend growth, the company’s current annualized dividend of $2 is up 19% from last year. Over the past 5 years, Aflac has increased its dividend 5 times year over year, with an average annual growth rate of 13.75%. Looking ahead, future dividend growth will depend on earnings growth and the payout ratio, which is the proportion of a company’s annual earnings per share that it pays out as dividends. Right now, Aflac’s payout ratio is 32%, meaning it paid out 32% of its trailing 12-month EPS as a dividend.

Earnings growth looks solid for the AFL for this fiscal year. The Zacks Consensus Estimate for 2024 is $6.46 per share, representing a year-over-year earnings growth rate of 3.69%.

Conclusion

From significantly improving stock investment returns and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payment.

For example, it’s a rare occurrence when a tech start-up or high-growth business pays a dividend to shareholders. It is more common to see larger companies with more established profits offering dividends. Income investors should be aware that high-yield stocks tend to struggle during periods of rising interest rates. With this in mind, AFL is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).

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