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Why Aflac (AFL) is a Top Dividend Stock for Your Portfolio

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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Aflac in Focus

Aflac (AFL - Free Report) is headquartered in Columbus, and is in the Finance sector. The stock has seen a price change of 5.62% since the start of the year. The insurer is currently shelling out a dividend of $0.5 per share, with a dividend yield of 2.3%. This compares to the Insurance - Accident and Health industry's yield of 2.75% and the S&P 500's yield of 1.58%.

In terms of dividend growth, the company's current annualized dividend of $2 is up 19% from last year. In the past five-year period, Aflac has increased its dividend 5 times on a year-over-year basis for an average annual increase of 13.75%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Aflac's current payout ratio is 32%. This means it paid out 32% of its trailing 12-month EPS as dividend.

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

Bottom Line

From greatly improving stock investing profits 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 payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that 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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