Dividend Matchup Between 2 Lovable Companies: Aflac (AFL) vs. Hershey (HSY)

By: ispeculatornew
Date posted: 07.15.2011 (5:00 am) | Write a Comment  (0 Comments)

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Who would ever want to choose between delicious tasting chocolate or a talking, incredibly cute duck that gives money? Ok, ok, I admit that if pressed I’d probably side with the talking duck but it’s a difficult choice. If we take out our sentimental side however, we do understand that only one of them would be a superior dividend stock. After publishing the top 100 dividend stocks 2 weeks ago, we detailed a new method that would be added to our dividend stock analysis: Does this company fit in the mold of a sustainable dividend portfolio? Last week’s newsletter (you really have no excuse for not signing up, it’s free!) detailed some methods of filtering and we came up with a list of 30 or so candidates. Unsurprisingly, many of those have been looked at recently both on this blog and in the newsletter but some others have not.

Today, we decided to take a deeper look into 2 of those names; Aflac (AFL) and Hershey (HSY). Both companies are very well known for their products but also because they’ve built incredibly strong brands. While it is not enough, that certainly helps make a company more sustainable. Let’s take a deeper look into the numbers for these 2 companies based off of the 20 things we look at when judging dividend stocks.

Dividend Metrics

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Aflac (AFL):

Hershey (HSY):

While both have comparable profiles, I do think that Aflac’s recent increases have been quite impressive and do help it look like a better target than Hershey. The current yield is slightly lower as is the 1 year growth but over 5 years Aflac’s growth has been more impressive and looks a bit more steady than Hershey. However, their underlying businesses might change things…

Company Metrics

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There is no doubt that Aflac’s profile looks even more attractive from this metrics. The sales growth has been superior and while earnings have not increased as much, the stock is trading at what seems like a cheap P/E ratio. Even more impressive is the fact that its payout ratio remains so low giving a huge opportunity for more dividend growth. The two arguments for Hershey would without a doubt be superior earnings growth, better return on equity. As for concerns with Aflac, I do have one. Insurance companies can often get caught in lowering their premiums so much in order to gain business that it will affect their profitability. If Aflac has been guilty of that, it could hurt its longer term profitability.

Stock Metrics

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Both stocks have fairly strong trend analysis scores although Hershey’s stock chart looks much more attractive. Given the fact that it’s not because of exceptional growth of its underlying business, I do not expect the trend to continue. It could be a great time to buy Hershey but I’d certainly be very careful.

Industry Metrics

Both companies are in competitive industries but I personally consider the insurance business to be much more difficult to compete in. Aflac does have a strong name that is likely to keep its business going strong for a long time and does seem like it is well managed but I do think that Hershey’s situation is much more solid as a global food company that has so many strong products. The insurance business is growing much more quickly from the perspective of a dividend investor, I do consider Hershey to provide more stable and sustained cash flows in the long term. It will face competition but solid competitors cannot appear overnight compared with the insurance business.

Fit With Your Portfolio

I do think that both stocks have very solid profiles and could fit very well in your portfolio. They have little correlation with the market, should do well in all economic cycles and I do think they would fit in almost any dividend portfolio.

Sustainability Factor

Last week, we wrote what turned out to be a very appreciated post about building a Sustainable Dividend Portfolio. I do think that both could be terrific fits and both evolve in long term industries. I do like profiles for both of these companies and would actually consider both in my long term sustainable dividend stock picks. However, if asked for the superior choice, for the moment I would go with Aflac (AFL) personally.

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