As befitting an insurance company where catastrophic events could cause large, unexpected payments, Aflac has a strong balance sheet, with a debt to equity ratio below 0.3 and nearly $5 billion in cash. Investors can buy that solid foundation for around 12 times the company’s expected forward earnings, providing a reasonable value for the money.
Aflac’s shares are available at that reasonable price despite the fact that it is expected to be able to grow its earnings at a healthy 13.5% annualized clip over the next five years. That gives investors reason to believe that Aflac will be able to continue its trend of increasing its dividend annually. That dividend yields 2%, sits at $0.45 per share per quarter, and is 25% of the company’s earnings. That reasonable payout and expected earnings growth strongly suggest Aflac can continue to raise its dividend.
A regional utility with an incredibly strong distribution business
Image source: Getty Images.
Unless you live in its Pennsylvania or small sliver of the Maryland service area, you may never have heard of natural gas and electric utility company UGI (NYSE: UGI). Chances are better, though, that you know the AmeriGas (NYSE: APU) propane distribution business that operates nationwide. UGI owns the general partner of AmeriGas and thus directly benefits from its operations. UGI’s propane distribution business also extends into Europe, giving it international reach in the business of moving energy around.
UGI’s balance sheet isn’t burdened by too heavy a debt load. It does carry a debt to equity ratio of around 1.2, which is reasonable for a utility. It also has a current ratio of around 1.0, indicating that it has sufficient cash and short-term assets on hand to cover its financial obligations coming due in the near term. That solid balance sheet supports a business available on the market at a reasonable 18 times its expected forward earnings, a decent value for a strong business in a critical industry.
Those earnings are expected to grow by around 6.2% annualized over the next five years, a decent clip that should outpace inflation — but isn’t exactly rapid growth. Those earnings support a dividend of $0.25 per share per quarter, for a yield around 2.1%. At a 40% payout ratio, UGI has room to continue increasing its dividend over time as its earnings grow.
Invest for your long-term future
In your 70s, you may very well have decades ahead of you. While you shouldn’t rely on stocks for money you need in the next few years, they can have a place in the longer-term part of your portfolio. By owning solid companies with decent prospects, reasonable valuations, shareholder-friendly dividend policies, and solid balance sheets, you can get stock-like returns with less worry than if you own high-flying businesses. That balance can serve you well as you plan your financial future and retirement.
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