Dividend Aristocrats: Time to Buy Aflac?

Source: Aflac.

Dividend stocks have never been more popular than they are now, and in the current low-rate environment for fixed-income investments, dependable dividends are worth even more. Aflac (AFL -0.97%) is in the top tier of dividend stocks, having joined the ranks of the Dividend Aristocrats a long time ago. In order to be a Dividend Aristocrat, a company must boost its dividend payouts to shareholders for 25 or more consecutive years. Only a few dozen stocks qualify, but those that make the cut do their best to stay there as long as they can.

Aflac is best-known for its duck commercials and its supplemental insurance business in the U.S., but that segment doesn't even make up the majority of Aflac's overall business. The majority of Aflac's business flies under the radar, coming from its more extensive operations in Japan. Do Aflac's prospects both domestically and abroad warrant a closer look from investors? Below, we'll take a closer look at Aflac.

Dividend Stats on Aflac

Source: Yahoo! Finance. Last increase refers to ex-dividend date.

What will sustain Aflac's dividend growth?
Aflac has done well in recent years, although 2014 has thus far been a time of uncertainty for the insurance giant. With so much of Aflac's success being tied to Japan, economic challenges that the island nation faces have direct consequences for Aflac's overall business. Recently, Japanese economic policies have caused the yen to lose value against the dollar, and a boost to the nation's consumption tax in April led to a huge decline in gross domestic product as well as fears of a longer-lasting economic slowdown that held back enthusiasm over Aflac's growth prospects there. Moreover, although Japan's older demographic holds some promise for selling new products to Japanese consumers, it also carries long-term concerns about a potential drop in population causing a drop in demand in future years.

Source: Aflac.

Yet Japan hopes that its policies will stimulate greater economic growth in the long run, and that would be supportive for Aflac. Japan's pro-growth policies have tried to bolster economic activity for decades now with limited success, but policymakers believe that very low unemployment could finally spell an end to the deflationary pressures that Japan has had to deal with since the early 1990s. That could help Aflac as well.

Meanwhile, in the U.S., the aging population also carries opportunities for Aflac. With Americans dealing with the impact of the Affordable Care Act, Aflac has a chance to demonstrate why its narrowly tailored voluntary coverage adds value beyond what even top-tier plans under Obamacare can cover. Unlike healthcare insurance giants UnitedHealth (UNH 1.63%) and WellPoint (ELV 1.30%), the Affordable Care Act doesn't impose huge new costs of doing business on Aflac, and that gives Aflac a potential advantage. If consumers follow suit by buying more supplemental policies, then Aflac could see the U.S. market become even more important to its overall results.

AFL Dividend data by YCharts.

The dividend perspective
Despite the ups and downs of the economy in Japan and the U.S., Aflac has still managed to boost its payouts consistently over time. After inching higher throughout most of the 1980s and 1990s, dividend growth accelerating leading up to the financial crisis, and even now, gains have been impressive from year to year.

Most importantly for dividend investors, Aflac offers a huge safety cushion compared even to other Dividend Aristocrats. With Aflac paying out dividends that equal just 23% of what it earns, the insurance giant can afford to go through some tough times from an earnings-growth perspective without putting investors at risk of a dividend cut. Moreover, after the impact of the strong dollar versus the yen works its way through earnings, investors expect earnings and sales growth to return next year, and that bodes well for bigger future dividend increases.

Indeed, because of those high hopes and the likelihood of a dividend increase coming before the end of the year, now's a good time to consider Aflac, especially at depressed prices. Japan will remain a source of nervousness for now, but in the long run, Aflac has weathered storms before and is in a strong position to remain a Dividend Aristocrat this year and in the future.