On Monday June 3rd it was announced that Aflac Incorporated (NYSE:AFL) had priced $700 million (par value) of 10-year fixed-rate, senior notes with a coupon rate of 3.625%. The 10-year notes will be issued at a price of 100.00 and yield 3.625% annually. In the wake of today's announcement, I wanted to not only examine the company's offering but also highlight several of the catalysts behind my decision to consider a long-term position in Aflac, Incorporated.
The Basis For The Offering: According to the company's press release, "The company intends to use the net proceeds from this offering to repay, redeem or repurchase one or more of the parent company's ¥28.7 billion aggregate principal amount of 1.47% Samurai notes due July 2014; ¥5.5 billion aggregate principal amount of variable interest rate Samurai notes due July 2014 (which bear interest at an annual rate of 1.32% as of March 31, 2013); and $300 million aggregate principal amount of 3.45% senior notes due August 2015. The balance of the net proceeds is expected to be used for general corporate purposes, including capital contributions to subsidiaries, if needed".
I strongly believe that all three of the above mentioned offerings will be in some way affected by today's announcement and could very easily be repaid based on my calculations. Why? The reasoning behind such a theory involves basic currency conversion and some simple addition.
Based on the most recent USD/JPY price of 100.365 (10:08pm EST), the ¥28.7 billion aggregate principal amount of 1.47% Samurai notes due July 2014 converts to a $285.95 million aggregate principal amount, the ¥5.5 billion aggregate principal amount of variable interest rate Samurai notes due July 2014 (which bear interest at an annual rate of 1.32% as of March 31, 2013) converts to $54.79 million aggregate principal amount of variable interest rate, and the addition of and $300 million aggregate principal amount of 3.45% senior notes due August 2015 brings the total outstanding debt of Aflac to $640.74 million. Not only do I think the repayment of the company's debt is a good thing, but the current yield at which the new debt is being offered is still higher than the average yield of the three previous offerings combined, and although slightly riskier I think it makes this particular offering much more attractive from an income standpoint than the previous three combined.
Trend Status: On Monday shares of AFL, which possess a market cap of $26.30 billion, were trading 2.57% above their 20-day simple moving average, 7.17% above their 50-day simple moving average, and 12.08% above their 200-day simple moving average. These numbers indicate a short-term, mid-term and long-term uptrend for the stock, which generally translates into a buying mode for traders.
24-Month Dividend Behavior: Since April 29, 2011, AFL has increased its quarterly distribution a total of two times by an average of $0.025/share each time. From an income perspective, the company's forward yield of 2.48% ($1.40) coupled with its continued annual increases could equate into a very viable income option for long-term investors in search of a moderate yielding insurance services play.
Conclusion: When it comes to those who may be looking to establish a position in Aflac I'd continue keep a watchful eye on not only the company's dividend growth over the next 12-24 months, but any efforts Aflac makes to repay, redeem, or repurchase preexisting debt and subsequently offer newer and more attractive longer-term debt.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AFL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.