Aflac: Dividends, Buybacks and Capital Gains

It is rewarding to buy stocks that keep rewarding you, whether through dividends, share repurchases or capital gains.

Or, you could buy all three in one stock: Aflac Inc. (NYSE:AFL).

About Aflac

Before the year 2000, the company was just one of many specialty insurance companies providing supplemental health and life insurance products. In 2000, it launched what turned out to be one of Americas best-known and beloved advertising campaigns.

That was the year it introduced the Aflac Duck. It was an immediate success and, according to the 10-K for 2022, it not only taught consumers how to pronounce Aflac, but it also made the company famous. It immediately became one of the most memorable advertising icons in both the United States and Japan, the two countries where it operates.

Now, 50 years after its founding, Aflac sells more than just supplementary health and life insurance products. Its Japanese products include group life, as well as insurance for disability, cancer, income support, nursing care and work leave. There is also an absence management platform.

In the U.S., it offers accident, disability, cancer, critical illness, hospital indemnity dental and vision insurance. That is on top of its traditional health and life lines. While it sells many types of insurance in two countries, none appear to expose it to potential catastrophic losses as property insurance does.

This visualization of the income statement shows the main sources and amounts of revenue:

Aflac: Dividends, Buybacks and Capital GainsAflac: Dividends, Buybacks and Capital Gains

Aflac: Dividends, Buybacks and Capital Gains


Aflac is a star in the dividend department, having increased its payment every year for the past 40 years. That also helps make it a Dividend Aristocrat, the main component of which is to have increased the dividend for at least 25 consecutive years.

It currently yields 2.41%, which is above the S&P 500’s average of 1.66% in March. The dividend payment growth rate has averaged 14% per year over the past three years and 11.50% per year over the past five years. Among publicly traded insurance companies, Aflac has the second-fastest dividend growth rate.

Aflac: Dividends, Buybacks and Capital GainsAflac: Dividends, Buybacks and Capital Gains

Aflac: Dividends, Buybacks and Capital Gains

Fast growth might suggest the companys dividend payout ratio might get too high. However, that is not the case as the current ratio is just 24%, leaving ample room for continued growth.

As always, with faster-growing dividends, we need to ask if they are sustainable. Apparently, they are. As it notes in its annual filing, The Company believes that its balance of cash and cash equivalents and cash generated by operations will be sufficient to satisfy both its short-term and long-term cash requirements and plans for cash, including material cash requirements from known contractual obligations and returning capital to shareholders through share repurchases and dividends.

Share repurchases

We can also gain a little more insight into dividend sustainability by checking a companys history of buying back shares. Stopping or slowing repurchases does not carry the same stigma as stopping or reducing dividends.

In Aflacs case, its fourth-quarter and full-year 2022 earnings release points out that it used $600 million in the fourth quarter to repurchase 8.9 million shares. Liquidity is obviously not a problem.

And thats not an anomaly of any sort. Over the past decade, the company has reduced its share count by an average of 4.03% per year.

Each reduction means that net income is divided among fewer shares, which pushes up the earnings per share and, ultimately, the share price. When the share price goes up, capital gains increase. So we might think of the buybacks as a 4.03% per year tailwind behind the share price.

Capital gains

And the share price has certainly gone up over the past decadewith the notable exception of the first year of the pandemic.

Aflac: Dividends, Buybacks and Capital GainsAflac: Dividends, Buybacks and Capital Gains

Aflac: Dividends, Buybacks and Capital Gains

Over the past three years, the earnings per share without non-recurring items growth rate was 14.20% per year. Over the past five years, it was 7.90% per year and over the past 10 years, it was 9.10%.

What are the odds we will see bottom-line growth continue in the high single digits or low double digits? Quite high, I would think.

Aflac has an industry-leading net margin of 21.68% and has been profitable every year for the past 10 years. While its three-year revenue growth rate is sluggish at just 0.90%, its earnings per share without NRI growth rate is 14.2%. Management that can convert revenue into earnings at that rate has made the company effective and efficient.


Putting together the dividend, share repurchases and capital gains, investors have seen satisfying returns. One of the ways in which we measure such returns is with return on equity. It is currently 15.48%, but as the following chart shows, it has been slipping over the long term.

Aflac: Dividends, Buybacks and Capital GainsAflac: Dividends, Buybacks and Capital Gains

Aflac: Dividends, Buybacks and Capital Gains

Declining returns on equity are not a good sign, but as GuruFocus has noted, ROE between 15% and 20% is considered desirable.


While I might have some concerns about that slipping ROE, I still believe Aflac to be a good candidate for many investors. It delivers a blend of dividends and capital gains that will satisfy investors who want to see their brokerage accounts grow. At the same time, it is an insurance company with a long history, and does not appear to have any exposure to catastrophic claims.

This article first appeared on GuruFocus.