Aflac's (NYSE:AFL) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Aflac Incorporated (NYSE:AFL) has announced that it will be paying its dividend of $0.42 on the 1st of June, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 2.4%, which is in line with the average for the industry.

View our latest analysis for Aflac

Aflac's Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. However, prior to this announcement, Aflac's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to fall by 8.4% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 28%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Aflac Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $0.66 in 2013, and the most recent fiscal year payment was $1.68. This implies that the company grew its distributions at a yearly rate of about 9.8% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. Earnings have grown at around 3.6% a year for the past five years, which isn't massive but still better than seeing them shrink. While growth may be thin on the ground, Aflac could always pay out a higher proportion of earnings to increase shareholder returns.

We Really Like Aflac's Dividend

Overall, a dividend increase is always good, and we think that Aflac is a strong income stock thanks to its track record and growing earnings. The earnings easily cover the company's distributions, and the company is generating plenty of cash. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Aflac that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.