Aflac(US:AFL) Seeking Alpha·2024-08-26 17:45Core Viewpoint - Aflac (NYSE:AFL) has demonstrated strong performance with a total return exceeding 27% since the last buy rating, driven by a growing number of cancer cases globally and a robust financial position that has allowed the company to navigate challenges effectively [2][4]. Financial Performance - Aflac reported Q2 earnings with earnings per share at $1.89, surpassing expectations by $0.29, and reflecting a 15.8% increase from the previous year [5]. - Revenue for the quarter was $5.1 billion, exceeding expectations by $830 million, although it showed a slight year-over-year decrease of 0.6% [5]. - Aflac Japan generated $3.2 billion in revenue for 2023, while Aflac US contributed $1.5 billion, with both segments experiencing increased sales volumes [5]. - Total net earned premiums decreased by 6.6% to $6.7 billion, but this was offset by a 7.9% increase in net investment income, leading to total revenues of $10.57 billion, up from $9.97 billion [6]. - Net earnings increased by 28.8% due to a decrease in benefits and claims, with total benefits and expenses down by 6.2% to $6.38 billion [6]. Investment Portfolio - Aflac's portfolio includes debt investments in middle-market loans and commercial real estate, which have been beneficial in the current high interest rate environment [7][9]. - The loan portfolio has a net book value of approximately $4.4 billion with a yield of 11.05%, focusing on companies with EBITDA below $50 million [9]. - The commercial real estate portfolio has a net book value of $7.2 billion with a yield of 7.7%, diversified across various property types, primarily multifamily properties [12]. Dividend Growth - Aflac has increased its dividend for over 41 consecutive years, with a current yield of 1.8% and a low payout ratio of 28%, indicating strong support for future dividend increases [4][15]. - The dividend has shown a compound annual growth rate (CAGR) of 14.77% over the last three years and 10% over the past decade, making it an attractive option for income-focused investors [15][17]. Market Outlook - The company is well-positioned to benefit from a prolonged high interest rate environment, which supports its income generation from debt investments [11]. - However, potential interest rate cuts could impact net investment income, and the portfolio's exposure to below-investment-grade borrowers may increase vulnerability to defaults [18][19]. - Despite these challenges, Aflac's strong financials and dividend growth potential make it a compelling investment opportunity [20].