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Here's Why Should You Hold Aflac (AFL) in Your Portfolio?

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If you want a stable source of income in the form of dividends along with steady growth, look no further than Aflac Inc. (AFL - Free Report) . The company boasts a portfolio of life insurance and cancer care products. Its wide presence in Japan, which is an aging nation, gives it an attractive growth opportunity.

Its life insurance business is also set to gain as the COVID-19 reawakened people’s awareness to take an insurance cover.

Aflac suffered premium declines in 2020 due to lower sales of its supplemental health products. These products are offered by employers to their employees. A spike in the unemployment rate due to COVID-19 in 2020 weighed on the company’s sales. Moreover, premiums dipped 2.3% in 2020 and further fell 3.7% in the first quarter of 2021.

Japan Business to Be Restored

However, with things looking up for Aflac, the company will soon regain its lost sales. In its Japan business, sales will be driven by the launch of its refreshed medical product in the first quarter of 2021. The company also incorporated technology to support its face-to-face as well as virtual sales. and provide an entirely digital customer experience.

Management expects the amalgamation of product development, improvement in pandemic conditions and the company’s alliance with Japan Post to be important catalysts as it enters the second half of 2021.

Also, Aflac’s largest selling channel Japan Post Group resumed sales of financial products in April this year. The latter was forced to cease sales of health insurance products after it was found guilty of flouting the right means of selling policies. Post investigation, it started selling again. This development will lead to a gradual rise in cancer insurance sales in the second half of the year.

U.S. Business on Strong Footing

Talking about the company’s another segment, which is the U.S Business, there are a number of factors working in favor of its growth. The 2019 acquisition of Argus Dental & Vision aided progress in this the segment. Argus has a strong reputation for servicing Medicare, and Medicaid dental and vision members. In the United States, the company rolled out Aflac Dental and Vision, which is now available in 40 states with more set to come online throughout the year.

Aflac’s acquisition of Zurich North America's U.S. Corporate Life and Pensions (Group Benefits) business (completed in November 2020) will further strengthen its position in the US broker distribution network. The buyout poises the company well for an expanded capacity in 2021.

Aflac is doing its bit to leverage technology for driving efficiency. To this end, it launched an enhanced enrollment platform called Everwell 2.0 in September 2020. It also unveiled its digital direct-to-consumer platform in the first week of January.  It offers critical illness, accident and cancer, and is approved to sell all three products in approximately 30 states with more states and products expected to enter service all through the year. We believe, these product introductions and technological integration will boost sales.

Divided Track to Be Maintained

The most attractive facet of Aflac is its dividend policy, which has grown in 38 consecutive years. The company had many years in which its revenues saw a bump but it stayed on with its dividend commitment. Its dividend payout ratio of below 20% makes it quite sustainable. Its dividend yield of 2.34% is in line with the industry average.

Our Take

We are sure that it will in no way deviate from its dividend growth track. However, its sales and revenue trajectory should be closely observed. We thus advise to keep tabs on the stock until its numbers give us a clear direction.

Zacks Rank and Price Performance

Year to date, the stock has gained 27% compared with its industry’s growth of 21%.



Other stocks sharing the same space are Unum Group (UNM - Free Report) , Allstate Corp. (ALL - Free Report) and Humana Inc. (HUM - Free Report) among others. Each of these stocks has gained 32%, 25% and 7.9%, respectively, during the same time period.

Aflac carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

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