Aflac Dividend – Slowing Or Growing
Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With all the craze surrounding dividends today, it makes sense to review if a company's dividend increases are growing at a steady pace, have flatlined, or are slowing down. Sometimes a company's dividend growth rate over the last 5 or 10 years can mask a more recent problem. Today we'll examine Aflac (NYSE: AFL) and see if this duck has something to quack about, or if his goose is about to be cooked.
Aflac is a favorite of long term investors, and I've written before about how the company shows impressive long term earnings and dividend growth. In fact, over the last 10 years, Aflac has grown dividends from $0.05 per quarter to $0.33 per quarter. This 56% growth rate is impressive, and surely is the reason long term investors have stuck with the duck. Since we're concerned with whether this rate of dividend growth is speeding up or slowing down, let's look at just the last 5 years.
In the last 5 years, Aflac has grown dividends from $0.205 per quarter to $0.33 per quarter today. This shows a growth rate of 12.20%. Look at the last five years pattern:
You can see that the growth in dividends has been slowing down. The percentage of growth in dividends over the last five years, has actually slowed from just over 17% to just over 10%. This actually makes a lot of sense, because Aflac's earnings growth over the last five years has exceeded 18%, but going forward this growth is expected to slow to about 11%.
Dividend growth is based on cash flow growth and the free cash flow payout ratio. In the last three years, Aflac's dividend payments as a percentage of operating cash flow have actually decreased each year. In theory, Aflac could raise its dividend more than its cash flow growth. In the end the company's cash flow growth will determine dividend growth. If earnings grow by 10-11%, I would also expect Aflac's dividend growth to move forward at a 10-11% rate.
Just by point of comparison, in the last five years, AllState (NYSE: ALL) a competitor of Aflac, shows dividend growth of just 1.6% in the last 3 years. Another competitor, Unum Group shows better performance, but still falls short of Aflac with 8.3% dividend growth in the last 3 years. Aflac investors have enjoyed extraordinary dividend growth in the last 10 years, but the last 5 years paints a more accurate picture of what the future should hold. Aflac's dividend is slowing as we've seen, but as a long term investment, a 10%+ dividend growth is still a very good rate.
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