Business

Amos: Aflac on track for 30th straight year of cash dividend growth

The year was 1955 and Frances Lolley had a huge decision to make — should she stay at Columbus Bank and Trust, a long-time local employer, or make the leap to an upstart company called American Family Life Insurance Co.

“I left CB&T and came there, and I wondered if I had done the wrong thing,” said Lolley, who started out helping sell stock in the company that has since changed its name to Aflac. “As employees, we had to buy one share of stock to attend the first stockholder’s meeting. And from that we began paying a monthly fee and investing in stock.”

Lolley, who retired 25 years ago and is 93 today, doesn’t recall how much she invested, but she does know where much of it has been spent.

“It helped educate my three children and grandchildren. It’s been wonderful,” said the resident of the Columbus assisted-living complex called Spring Harbor, which had a sizeable presence at today’s annual meeting of Aflac shareholders at the Columbus Museum on Wynnton Road.

For the record, Aflac Chairman and Chief Executive Officer Dan Amos pointed out that anyone who bought 1,000 shares upon the company’s founding would have paid $11,000. After factoring in 28 stock splits and reinvesting the dividends into the firm, that initial purchase would have multiplied to just under 1.9 million shares and a dividend payout of $1.2 million this year alone.

“What is even more impressive is that at the (stock market’s) close on Friday, the original investment of $11,000 was worth $82.3 million,” said Amos, who touched on myriad topics during the meeting, including the potential for 2012 being the 30th straight year the insurer has increased its cash dividend.

“The board will evaluate the dividend increase later this year, but I’m confident that our strong capital position will allow us to extend our consecutive dividend increase to 30 years,” he said.

The company, headquartered on Wynnton Road in Columbus, racked up a profit of $1.96 billion on revenues of nearly $22.2 billion in 2011. The momentum carried over into the first quarter of this year, with it posting a profit of $785 million on revenues of $6.2 billion.

Although he went over detailed numbers showing how premium sales and operating earnings contributed to strong financial results in Japan and the United States, a significant portion of Amos’ presentation was directed toward a thorn in its side — investments in Europe.

Last month, the company reported that it had dumped more than $1.6 billion in potentially risky investments made several years ago in European securities, prior to the financial crisis that has hammered countries such as Greece, Italy, Spain and Portugal.

Before investing so heavily in Europe, Aflac had looked at putting much of its cash flow into Japanese bonds. But they were deemed too risky because of too much exposure to sliding rate yields. At the time, pre-recession, Europe offered top-tier securities, with the banks there especially attractive.

“All of the securities were investment grade or highly rated when we purchased them,” Amos said. “These bonds met our investment needs without fanfare. In fact, there were times our investment approach was considered boring by many analysts.”

But in 2009, as the financial crisis was engulfing much of the world, the company made a decision to stop purchasing investments in Europe and sell some of what it had there. It then turned its cash-flow spigot back toward Japanese government bonds.

“Keep in mind it is challenging to invest large cash flows in a low interest rate environment,” the CEO said. “For example, in Japan alone in 2011, we invested $57 million each business day. That’s about $7 million an hour.”

The shift in investment strategy was completed last November when Aflac hired Eric Kirsch, Goldman Sachs Asset Management’s managing director. Kirsch pulled the trigger on the most recent European investment selloff. About 85 percent of targeted investments have now been liquidated, Amos said.

The CEO also said today the company is opening an investment office at 100 Wall Street in New York this week and is quickly moving to staff it with the “best people possible.” Columbus and Tokyo also will retain investment staff as well.

“We can’t control what will happen in the world, but we can control our exposure to investments that we believe have potential risks,” Amos said. “I believe our portfolio is better positioned to accomodate market volatility in the future.”

As is customary, Amos showed the latest Aflac duck television commercial during the annual meeting, as well as “robot cat duck” ad that is airing in Japan, where the company has 97 percent brand recognition. That compares to 93 percent in the U.S.

The duck has been quacking up sales for the health and life insurer for a dozen years and has proven to be one of the best decisions that Amos has made.

“As a CEO it’s very difficult to make a prediction,” he said. “It’s also very nerve-wracking when you go out on a limb and you believe in something and other people are questioning it.”

Amos also touched on the devastating earthquake and tsunami that hit Japan in March 2011, saying the people there have been “resilient” in their recovery from the disaster, which has had no negative impact on the firm’s sales.

As far as prognostications, the CEO said his company remains on pace to grow operating earnings per diluted share this year 3 percent to 6 percent, excluding any impact from the U.S., Japan currency exchange rate.“Although we have not yet finalized our projections for 2013, I can tell you that we expect the earnings growth in 2013 to improve over 2012,” he said.

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