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This is Why Aflac (AFL) is a Great Dividend Stock

Zacks Equity Research

Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Aflac in Focus

Aflac (AFL) is headquartered in Columbus, and is in the Finance sector. The stock has seen a price change of 18.35% since the start of the year. Currently paying a dividend of $0.27 per share, the company has a dividend yield of 2%. In comparison, the Insurance - Accident and Health industry's yield is 1.18%, while the S&P 500's yield is 1.86%.

In terms of dividend growth, the company's current annualized dividend of $1.08 is up 3.8% from last year. Aflac has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 8.49%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, Aflac's payout ratio is 25%, which means it paid out 25% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for AFL for this fiscal year. The Zacks Consensus Estimate for 2019 is $4.31 per share, which represents a year-over-year growth rate of 3.61%.

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. But, not every company offers a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that AFL is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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