Aflac: Growing Cancer Cases Will Lead To Higher Revenues

Core Viewpoint - Aflac remains a strong dividend growth company despite recent stock price underperformance compared to the S&P 500, with a total return of approximately 6% since December 2023, compared to the S&P's nearly 10% [2] - The company is expected to benefit from increasing cancer insurance sales due to rising cancer prevalence among younger adults in both the Japanese and US markets, which is seen as a long-term growth catalyst [4][5] Company Overview - Aflac specializes in life insurance and health supplemental products, operating primarily in two segments: Aflac Japan and Aflac US, offering services such as illness insurance, wellness care, nursing care, and life insurance [4] - The company has increased its dividend payout for 41 consecutive years, positioning it close to the Dividend Kings list, with a strong focus on dividend growth rather than yield [4][11] Financial Performance - In Q4, Aflac reported revenue of $3.8 billion and EPS of $1.25, missing analyst expectations of $4.4 billion in revenue and $1.45 EPS [5] - Total revenues for 2023 were $18.7 billion, reflecting a slight 2.3% decrease from the previous year, while pretax earnings reached an all-time high of $1.5 billion, a 10.4% increase year-over-year [6] - The Japan segment saw a 10.9% increase in total sales, driven by a 26% rise in cancer insurance sales, while the US segment experienced a 5% sales increase, with cancer insurance sales up nearly 25% [5][6] Market Position and Growth Potential - Aflac holds a market share nearly three times greater than its nearest competitor, with a total market share of 29% globally [7][8] - The company aims for net premium growth of 3-5% in fiscal year 2024, supported by strategies to reduce expenses and increase margins [8] - Management forecasts sales in Japan to reach ¥67 billion to ¥73 billion by the end of 2026, emphasizing the importance of acquiring a younger customer base [5][8] Dividend Analysis - The current dividend yield is 2.3%, with a quarterly payout of $0.50 per share, and a low payout ratio of approximately 28%, indicating room for continued dividend growth [11][13] - The dividend has grown at an average rate of 13% per year since 2019, with an estimated price target of $100 per share based on a dividend discount model [9][10] Strategic Focus - Aflac is focusing on acquiring a younger customer base to drive future growth in cancer insurance sales, which is expected to rise significantly due to increasing cancer rates [5][17] - The company is also working to optimize its distribution channels to enhance financial protection for consumers [5]