Aflac Inc. (AFL) is the world’s largest underwriter of supplemental cancer insurance. Aflac insurance products pay cash benefits directly to the insured to help protect against income and asset loss when a specific health event causes financial challenges. They are the number one provider of voluntary insurance products at the work-site in the United States and the number one life insurance company in Japan. In 2011, operations in Japan accounted for roughly 80% of profits while the other 20% was attributable to the United States. The company makes money by selling new insurance policies, collecting premiums from renewed insurance policies and from investment income made by investing the insurance premiums received.
Aflac has been a strong company for shareholders as they have been able to increase earnings per share in almost every year over the past 15 years. The company has been great for dividend growth as they have paid out an annually increasing dividend for 30 years in a row. I’m a fan of Aflac as it was my first stock purchase of 2013. Let’s take a look at how an investment in this insurance company would have fared over the past 10 and 20 years.
A 10 Year Investment in Aflac
Let’s take a look and see how you would have fared if you invested $5,000 in Aflac stock exactly 10 years ago. On February 25, 2003 you would have been able to purchase roughly 161 shares of Aflac for $4,991 at a closing price of $31.00. The most recent closing price of AFL was February 25, 2013 when AFL closed at $48.88. Today your 161 shares would be worth roughly $7,869.68 for a return of 57.7% or a compound annual growth rate of 4.66%.
Aflac performed fairly average over the past decade for investors offering an annual return slightly below 5%. However, keep in mind that the world suffered through one of the biggest financial crisis in history. Taking the financial crisis from 2008 through 2009 into account, Aflac has performed fairly well for owners.
While market returns have been decent over the past 10 years, lets not forget about the dividends you would have received during those 10 years as well. Over the course of the past 10 years you would have received a total of $1,374.94 in dividend income. This means that your total return over the past decade of owning Aflac stock has been 85.23% or 6.36% compounded annually. Through a decade when many claim the stock market has been dead money, Aflac increased your money by 85%. This has been a pretty decent investment through the past decade for owners.
So over the past decade while owning Aflac shares you have enjoyed a 6.36% compounded annual return. You have been paid in cash dividends $1,374.94. You could have used that dividend income to help with some of your expenses such as groceries or utility bills. Or you could have reinvested those dividend payments and your total return would have been even better. AFL was a pretty decent investment for dividend growth investors over the past decade.
A 20 Year Investment in Aflac
A 10 year investment in Aflac was pretty decent for shareholders. How about a 20 years investment? Lets take a look at how you would have fared had you invested $5,000 in Aflac stock 20 years ago. On February 25, 1993, AFL stock closed with a price of $33.56. You would have been able to buy 148 shares for a total price of $4,966.88. Since that date there a 5 for 4 stock split, a 3 for 2 stock split and two 2 for 1 stock splits. Today you would have a total of 1,110 shares worth a total value of $54,256.80. This would give you a return of 992% or 12.7% compounded annually.
Once again don’t forget about all the dividend income you would have received over the past 20 years by just owning your Aflac shares. Over the past 20 years you would have received a total of $10,895 in dividend income from AFL. This means that your total return over the past 2 decades of owning Aflac stock has been 1,211.72% or 13.73% compounded annually.
So a 20 year investment in Aflac earned you a total return of 13.73% compounded annually. You would have received $10,895 in dividend income to either offset your expenses or reinvest in the company. Had you reinvested in more Aflac stock your returns would have been even better.
Aflac was a pretty good investment over the past decade and 2 decades for those who purchased shares in the company. It is interesting that a fairly boring company operating in the insurance industry can be such a great investment for dividend growth investors. They have been growing their dividend for 30 years in a row. This exercise has shown just one more example of a how investing in dividend growth stocks has turned out pretty good for investors following this strategy.
I want to point out that I am not taking into account the company’s valuation 10 or 20 years ago. I am merely looking at how you would have fared if you had purchased the stock exactly 10 or 20 years ago. If the company was overvalued at the time of your purchase, your returns will generally be lower. If the company was undervalued at the the time of your purchase, returns generally will do well. Stock valuation at the time of purchase is one of the most important things to take into consideration. Even a great investment will not turn out great if you pay too much for it.
What do you think? Do you own Aflac stock? Would you have been happy with these returns over the past couple decades? Where do you see this company going in the future?
Disclosure: I am long AFL.
If you enjoy reading about dividend growth investing then check out my Free Dividend Growth Investing Guide and newsletter.