In an effort to boost shareholder confidence in Aflac Inc. (AFL - Analyst Report) , the board of this life and health insurer sanctioned a new share repurchase program for 40 million shares, to commence with immediate effect. As expected, markets also responded well to the announcement as the stock rose 1.6% to $66.27 on Nov 13.
Under its prior authorization, Aflac bought back about 308,000 shares worth $18.5 million during the third quarter of 2013. Overall, the company repurchased $298 million worth of shares in the first three quarters of 2013.
Consequently, about 16.9 million shares were available for repurchases as of Sep 30, 2013. Including this, Aflac can now buy back close to 56.9 million shares. Further, the share buyback will be executed through open market operations, subject to market conditions, and thus do not have an expiry period.
Concurrent with its earnings release in Oct 2013, Aflac had expanded its share repurchases to $800 million in 2013, up from the prior estimate of $600 million. Meanwhile, shares between $800 million and $1.0 billion are expected to be bought back in 2014, up from the earlier projection of $600–900 million.
Moreover, the latest extension of the share buyback came soon after Aflac hiked its dividend payout by 5.7%, in late Oct 2013, from prior 35 cents a share. Hence, the increased quarterly dividend of 37 cents per share is payable on Dec 2, 2013 to the company’s shareholders of record as on Nov 20, 2013.
Overall, Aflac’s capital and liquidity levels remain impressive. We expect the company to benefit from its industry-leading position, diversification, new product suite, pricing discipline and an improving economy in the long run.
However, we apprehend that the uncertain economic environment in Japan will continue to affect Aflac’s premium writings and investment risk in the upcoming quarters, as reflected by the dismal financial results in the first nine months of 2013. Hence, returning excess wealth to shareholders will not only lower share count and be accretive to earnings per share, but also retain investors’ confidence in the stock.
While Aflac carries a Zacks Rank #3 (Hold), outperformers in the insurance industry include Hilltop Holdings Inc. (HTH - Analyst Report) , PartnerRe Ltd. and Employers Holdings Inc. (EIG - Snapshot Report) . All these stocks carry a Zacks Rank #1 (Strong Buy).