Most people know about Aflac (NYSE: AFL) because of its quirky marketing campaigns featuring a talking duck. But those who use Aflac’s supplemental insurance products know how valuable they can be, providing much-needed coverage for areas in which most traditional health insurance doesn’t pay benefits. From policies designed to cover specific health conditions to accident and short-term disability coverage, Aflac fills in gaps the insurance industry has largely ignored, and that’s allowed the insurer to prosper.
Aflac actually gets most of its business from Japan, where its cancer insurance policies are so ubiquitous that they’re even sold in the post office. The company’s geographical diversification has often helped Aflac smooth out its growth and avoid hiccups that have hurt rivals that focus solely on one country.
For dividend investors, Aflac has an impressive 36-year streak of increasing its payouts. The recent yield of 2.3 percent isn’t extremely large, but the insurer increased its payout by almost 16 percent earlier this year.
With conditions remaining favorable in the insurance industry, Aflac is poised to retain its status as a leading provider of profitable supplemental coverage for millions of customers. Its reasonable valuation (featuring a single-digit price-to-earnings ratio), growing dividend and healthy balance sheet also make it worth consideration. (The Motley Fool has recommended Aflac.)
Ask the Fool
Q: When a company buys another company, does the acquiree’s stock price always go up? – H.W., Salisbury, Maryland
A: It depends on the deal. If the acquiree’s prepurchase market value is around $4 billion (let’s say that amounts to a $40 share price), and it’s purchased for $5 billion (or $50 per share), the stock price will likely jump on the news, typically to around the purchase price per share (in this case, $50).
Companies are often bought at premiums to their market value, especially when they have desirable technology, patents, growth prospects and so on. In such cases, the acquirer may have to outbid other interested parties. It’s different for struggling companies; they might be bought for relatively little when their stock prices are depressed.
Meanwhile, if investors are bullish about the acquisition, the acquiring company’s own price might also rise. But if many believe that it overpaid or that it won’t see a good return on its investment, its price can fall. It all depends on investor expectations and reactions to the deal. Some acquisitions turn out to be brilliant moves, while others are regretted.
Q: Can I give my grandchildren small gifts of stock? If so, how? – C.C., Tacoma, Washington
A: You can open custodial brokerage accounts for your kids and invest through them, or you might open direct stock-purchase or dividend reinvestment plan accounts. (Learn more about the latter by typing this wacky address into your browser: bit.ly/2Rjc5Qj.)
Some companies, such as GiveAshare.com and Stockpile.com, specialize in selling single shares (or fractions of shares) that are typically meant to be gifts. Be sure to focus on companies that kids know and like, such as Apple, Starbucks, Netflix or Nike.
My dumbest investment
Nothing beats those bubble days of the late 1990s: There was no logic to how high many stocks were flying, and everyone was an expert. Many hot tips worked out, and we were riding the insanity wave. The train seemed to be running too fast to get off. Stocks were like fancy cars, and everybody wanted them. You got tips from your neighbor, in the grocery line, at work, from family members; the market was so nuts on technology and dot-com stocks that they kept going up.
Then it all turned. But there was no need to worry: The talking heads on TV said hold on, it was an adjustment. Your broker said hold on, it was an adjustment. The guy in the grocery store line said it, too. So some of us held on. Heck, we bought more at those bargain prices. We pitied sellers who “lost their nerve” and thought ourselves bold investors. It’s amazing – as long as you have a large enough crowd to support you, you can watch a portfolio go from a solid six figures to five and still feel smart. Sometimes you just refuse to accept that the party is over. – Steve, online
The Fool responds: It’s vital to have a handle on when a stock is under- or overvalued. Only buy when there’s a lot of upside, and consider selling significantly overvalued holdings, unless you plan to hang on for years.
Subscribe to the Morning Review newsletter
Get the day’s top headlines delivered to your inbox every morning by subscribing to our newsletter