Smart Dividend Portfolio: Yield Shield
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Dear Investor,
Welcome to our weekly edition of TipRanks’ Smart Dividend Portfolio & Newsletter.
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Market-Moving News: May 11, 2026
Last week, stocks reached new highs as strong job data and gains in chip stocks helped lift the market. The S&P 500 (SPX) rose 0.84% to 7,397.09, while the Nasdaq (NDX) gained 2.35% to 29,195.16. The Dow Jones Industrial Average (DJIA) added just 0.02% to 49,600.78, indicating the rally was still led by growth and tech rather than the broader market.
At the same time, the U.S. 10-year yield moved down to 4.33%, which helped ease some rate fears. The VIX fell to 17.08, gold (CM:XAUUSD) rose 1.39% to $4,747, and oil (CM:CL) slipped 1.79% to $93.38. Bitcoin traded near $81,332, down 0.12%, staying in a tight range near the $80,000 level.
The key macro point came from the April jobs report. The U.S. added 115,000 jobs, well above the 55,000 that analysts had expected, while the jobless rate held at 4.3%. As a result, the data helped ease fears about the labor market, but it also reinforced the view that the Federal Reserve may hold rates steady for now.
Oil stayed in focus after the U.S. and Iran traded fire near the Strait of Hormuz. West Texas oil moved near $95, while Brent hovered near $101.
Looking ahead, investors will be watching the Federal Reserve following the strong jobs report. The labor market still looks firm enough to support growth, but not weak enough to push the Fed toward fast rate cuts. As a result, bond yields and Fed talk may remain key drivers.
At the same time, AI spend will remain the main market theme. Investors will watch whether chip stocks can keep rising after a sharp run, and if the gains can spread beyond names tied to memory, GPUs, and cloud deals.
In addition, oil and the Middle East will be key risks. Any fresh move near the Strait of Hormuz could lift crude prices and bring back fears about fuel costs and inflation.
Finally, earnings and guidance will matter even more after a strong six-week run for the S&P 500 and Nasdaq. Strong tech results have helped push stocks to new records, but high valuations mean the market may need more than just good news to keep moving higher.
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This Week’s Quality Dividend Stock Idea
Aflac (AFL) is a U.S.-based insurance company that provides supplemental health and life insurance products, offering coverage for expenses not typically covered by primary insurance, such as accident, cancer, and critical illness. Its operations span the United States and Japan, serving individuals and employers through workplace-based and direct distribution channels, with a strong focus on voluntary benefits and policyholder financial protection.
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Durable Migration
Aflac traces its origins to 1955, when it was founded in Columbus, Georgia, as American Family Life Insurance Company, initially focused on life insurance. A pivotal shift came in the 1960s and 1970s as the company pioneered supplemental insurance – policies designed to pay cash benefits directly to policyholders – establishing a differentiated, protection-focused model.
A defining milestone in Aflac’s expansion was its entry into Japan in 1974, where it introduced cancer insurance and effectively created a new market category. Strong demand driven by rising healthcare costs and an aging population enabled Aflac to build a dominant position in Japan’s “third sector” insurance market, which has since become the primary driver of earnings.
Through the 1980s and 1990s, Aflac scaled its distribution network across Japan and the United States, leveraging worksite marketing and agency channels to generate recurring premium growth. In 1973, the formation of a holding company structure supported capital flexibility and international expansion. Growth accelerated in the 2000s with brand-building initiatives, most notably the extremely memorable Aflac Duck campaign launched in 2000, alongside expanded partnerships in Japan with banks, postal networks, and insurers, significantly broadening customer reach.
In the late 2010s, Aflac refined its structure and growth strategy. In 2018, it converted its Japan branch into a subsidiary, Aflac Life Insurance Japan Ltd., enhancing regulatory alignment and operational independence. This was followed by targeted acquisitions to expand its U.S. platform. The 2019 acquisition of Argus Holdings, a dental and vision benefits provider serving nearly one million members, marked Aflac’s entry into network-based coverage beyond supplemental insurance. In 2020, the acquisition of Zurich North America’s U.S. group benefits business added approximately $120 million in annualized premium and strengthened its presence in group life, disability, and absence management.
Aflac also pursued selective partnerships to enter adjacent markets, including a 2022 joint venture with Trupanion to offer pet insurance in Japan, although the business was later exited in 2024. Collectively, these initiatives reflect a disciplined strategy of bolt-on expansion, product diversification, and structural optimization.
Today, Aflac’s earnings profile reflects a multi-decade evolution into a leading supplemental insurer, with growth driven by its dominant Japan franchise, an expanding U.S. benefits platform, and a scalable, cash-generative model built on recurring premiums and disciplined underwriting.
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Policy Power
Aflac operates a focused insurance business model centered on supplemental health and life coverage, designed to pay fixed cash benefits directly to policyholders. Unlike traditional health insurers that reimburse medical providers, Aflac’s products provide predefined payouts for events such as accidents, cancer diagnoses, or hospitalizations, allowing customers to cover out-of-pocket costs. This structure simplifies claims, limits exposure to healthcare cost inflation, and supports predictable underwriting outcomes.
At its core, Aflac generates revenue from premiums collected on policies across its two primary segments: Aflac Japan and Aflac U.S. The Japan segment is the dominant earnings contributor, benefiting from a leading position in cancer and medical insurance, where long-duration policies and high persistency rates1 create a stable and recurring premium base. In the U.S., the company focuses on worksite and group-based distribution, offering voluntary benefits such as accident, disability, and critical illness coverage, which are typically payroll-deducted and portable, further reinforcing retention and recurring revenues.
Profitability is driven by the spread between premium income and claims paid, supported by disciplined underwriting and a product mix that is less sensitive to large, unpredictable medical costs. Because benefits are fixed and clearly defined, Aflac maintains greater control over claims variability compared to traditional insurers. This contributes to consistent margins and strong operating leverage as policy volumes grow.
A second key earnings driver is investment income. Premiums are invested primarily in fixed-income securities to support long-term policy liabilities, generating a steady stream of interest income. The large and growing investment portfolio enhances overall profitability, particularly in stable or rising rate environments, while aligning asset duration with long-dated liabilities.
Looking ahead, Aflac’s earnings growth is supported by structural demand for supplemental insurance, particularly in Japan’s aging population and in the U.S., where rising healthcare costs increase the need for voluntary benefits. Expansion into adjacent offerings such as dental, vision, and group benefits, alongside diversified distribution channels, further broadens its addressable market. This combination of recurring premium revenue, controlled claims exposure, and consistent investment income underpins durable cash flow generation and long-term earnings visibility.
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1- The persistency rate measures how many customers keep their policies over time, with higher persistency supporting recurring premiums, stronger long-term profitability, and lower acquisition cost pressure.
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Growth Runway
Aflac’s current investment narrative is best understood by focusing on a few key drivers, led by Japan’s premium trajectory and the evolving growth mix in the U.S., with newer initiatives providing longer-term optionality.
The most important near-term issue is the gap between strong sales growth and still-declining premiums in Japan, which represents the core earnings inflection point. New sales increased strongly in the quarter, driven by successful product launches and improving demand. However, total premium income remains slightly negative because Aflac’s large base of older policies continues to run off. Management indicated that annual sales of roughly $574 million are required to stabilize premiums, compared to about $510 million in 2025 and an internal target of around $500 million for 2026. This means momentum is improving, but not yet sufficient.
Within this, lapse dynamics are an important secondary factor. In Japan, more policy lapses came from newer policies rather than older cancer policies, which typically generate larger reserve releases when they lapse. These reserve releases supported reported earnings and improved the GAAP benefit ratio, which measures insurance benefits and claims costs as a percentage of premiums earned. However, in the first quarter, a greater proportion of lapses came from newer, recently issued policies, while fewer older policies lapsed than usual. That being said, management did emphasize that this was largely an accounting effect rather than a deterioration in underlying profitability. Many of the lapsed policies are being replaced with newer products that are showing better persistency, meaning customers are keeping them longer, which could support stronger long-term profitability despite modest near-term margin pressure.
Management addressed concerns around macroeconomic pressures, particularly inflation and higher fuel costs, which could theoretically affect both customers and sales agents. Higher living costs might lead policyholders to cancel coverage or make it harder to recruit and retain agents. However, Aflac reported no observable negative impact on either front. In fact, premium persistency, an important metric that measures how many customers keep their policies,remained stable and even trended slightly higher. This indicates that Aflac’s products are viewed as valuable and relatively resilient, even in a more challenging economic environment.
The company is seeing a shift in its U.S. growth drivers, with group-based products increasingly offsetting weakness in the traditional agent-driven business. While the legacy individual policy channel has been flat to slightly declining amid competitive and productivity pressures, group products such as voluntary benefits, group life and disability, and dental and vision coverage are growing at a much faster pace.
This transition is evident in the company’s results. Group product sales increased at a double-digit rate, while “buy-to-build” areas such as dental, vision, group life, and absence management expanded even faster. Dental and vision sales surged 52% year over year, reflecting a rebound after several years of investment in networks, capabilities, and distribution.
This shift is significant because group products tend to generate more stable and scalable revenue streams through employer relationships, while also expanding Aflac’s position from a single-product insurer to a broader employee benefits platform with greater cross-selling opportunities.
Beyond these core drivers, Aflac is building external reinsurance as a longer-term growth lever. During the quarter, its Bermuda-based subsidiary, Aflac Re, assumed a block of whole life annuities from Japan Post Insurance. While the transaction had a small negative earnings impact in the mid-single-digit millions of dollars in Q1, it is expected to be roughly earnings-neutral over time.
The transaction marks the launch of the company’s external reinsurance platform in Japan. Leveraging its AA-rated balance sheet and deep local expertise, Aflac aims to selectively assume mortality, longevity, and investment-related risks from other insurers. Management views this as a gradual expansion of existing capabilities that could become a meaningful earnings contributor over time as the platform scales.
Aflac is also expanding its administrative services business, where it manages claims and benefits for self-insured employers without taking full insurance risk. The unit serves about 3 million individuals and generates roughly $90 million in service fees plus $40 million in stop-loss insurance premiums. While still a small contributor, management sees it as strategically valuable for strengthening client relationships and cross-selling higher-margin insurance products over time.
At the same time, investors should be aware of some pressure within the investment portfolio, particularly in commercial real estate (CRE). Like many insurers, Aflac invests a portion of its assets in real estate-related loans and properties. During the quarter, the company recognized impairments and some loan charge-offs tied to this segment, reflecting broader stress in commercial property markets.
However, management’s approach has been notably measured. Rather than selling assets into a weak market and locking in losses, the company is holding and managing these positions throughout the cycle. Leadership indicated that the underlying, or intrinsic, value of these assets remains higher than current market pricing suggests, implying that losses may be more a function of timing.
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Earnings Armor
Aflac has delivered steady earnings growth over the past five years despite pressure on reported revenues from foreign exchange movements. Revenue declined at roughly 3.4%, primarily because the weakening Japanese yen reduced the value of Japan-generated revenue when translated into U.S. dollars, even though the underlying business in Japan remained relatively stable. Meanwhile, EPS increased at a CAGR of 6.5%, supported by disciplined expense management, favorable claims trends, rising investment income from higher interest rates, and aggressive share repurchases.
The company continued this momentum in the first quarter of 2026, delivering results supported by strong underwriting performance and disciplined capital management despite some foreign exchange and investment-income volatility. Revenue increased about 28% year over year to $4.3 billion, exceeding consensus estimates, while net earnings surged to $1.0 billion, or $1.98 per share, from just $29 million, or $0.05 per share, in the prior-year quarter. The sharp improvement was largely driven by investment gains and favorable foreign currency and derivative activity compared with significant investment losses a year earlier. These gains were partially offset by credit-loss provisions, investment impairments, and declines in the value of certain equity securities.
Adjusted EPS came in at $1.75, or $1.77 excluding foreign exchange impacts, representing 6.6% year-over-year growth but slightly missing Street expectations. Results benefited from $82 million in reserve remeasurement gains, including approximately $23 million above internal expectations, though weaker variable investment income reduced earnings modestly. Adjusted return on equity remained strong at 16.4%, while adjusted book value per share, excluding FX impacts, increased slightly to $42.71.
Aflac also maintained a strong balance sheet and capital position. Unencumbered liquidity stood at $3.4 billion, well above the company’s $1 billion minimum target, while adjusted leverage of 21.2% remained comfortably within management’s target range of 20%–25%. Regulatory capital metrics also remained exceptionally strong, with the Risk-Based Capital (RBC) ratio2 near 560% and the Economic Solvency Ratio (ESR)3 above 227%, or 243% when including certain adjustments. For context, these levels are well above typical regulatory minimums and internal operating targets, indicating a significant buffer against potential stress scenarios. In practical terms, this means Aflac has substantial financial flexibility; it can absorb volatility, fund growth initiatives, and still return large amounts of capital without compromising stability.
Operationally, Aflac Japan was the standout performer, with new sales rising 25.5% year over year, driven by successful product launches and solid demand for its insurance and savings-related offerings. However, net earned premiums in yen declined 3.8%, or 1.3% on an underlying basis, reflecting ongoing runoff dynamics. Profitability remained strong, with a benefit ratio of 62.9%, down 290 basis points year over year, and a pretax margin of 35%, up 320 basis points.
In the U.S., growth was more measured, with new sales up 2.9% and net earned premiums increasing 3.5%, supported by solid persistency of 79.3%. Group products continued to outperform, rising 12.4%, while “buy-to-build” areas, including dental, vision, and group life and disability, grew 25% year over year. The core agent-driven business remained flat, although recruiting momentum improved, with 10,000–11,000 new agents expected and productivity rising 8%. Profitability remained stable, with a benefit ratio of 47.2% and a pretax margin of 20.4%.
The corporate segment reported breakeven pretax earnings, down from a $43 million gain a year ago, reflecting lower investment income, higher interest expense, and reinsurance runoff. Real estate exposure resulted in $24 million of impairments and $19 million of loan charge-offs, though management indicated underlying asset values remain intact.
Aflac’s results highlight a business supported by strong underwriting, resilient Japan growth, expanding U.S. product lines, and a well-capitalized balance sheet with multiple levers to sustain earnings and cash flow generation.
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2- The Risk-Based Capital (RBC) ratio measures an insurer’s capital relative to regulatory requirements and indicates the insurer’s capital position and financial flexibility.
3- The Economic Solvency Ratio (ESR) is a broader solvency measure used mainly for Japan insurance operations that helps investors assess balance sheet strength, capital return capacity, and the company’s ability to withstand investment-market volatility.
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Capital Cushion
Aflac has built a long track record of shareholder returns, consistently paying dividends for 43 consecutive years and earning its status as a Dividend Aristocrat. Over the past decade, the company has increased its dividend at a CAGR of 11.4% while maintaining a conservative adjusted earnings payout ratio of roughly 31%, leaving ample room for continued capital returns and reinvestment. Aflac currently offers a dividend yield of about 2.1%, comfortably above the broader financial sector average of 1.3%.
The company has also remained aggressive with share repurchases. In the first quarter of 2026 alone, Aflac returned approximately $1.3 billion to shareholders through $1 billion in buybacks and $315 million in dividends. Management still held another $12 billion authorized for future repurchases at the end of the quarter, underscoring the company’s strong cash generation and capital flexibility.
Aflac’s stock has gained roughly 9% over the past year, supported by rising investment income, improving benefit ratios in Japan, steady dividend growth, and continued buybacks. However, gains have been partially offset by persistent yen weakness and occasional earnings volatility tied to foreign exchange and investment markets.
Despite these headwinds, AFL is trading slightly above its historical averages based on non-GAAP trailing and forward P/E ratios and forward price-to-book. Compared to its peers like MetLife, Globe Life, Unum and Prudential Financial, AFL is trading in the moderate-to-high valuation range based on non-GAAP trailing and forward P/E, and forward price-to-book ratios.
This premium valuation suggests the market views Aflac as a higher-quality and more stable insurer with stronger profitability, capital strength, underwriting discipline, and shareholder returns than many traditional life insurance peers. Investors also likely place value on Aflac’s resilient Japan franchise, strong balance sheet, and consistent buybacks and dividends.
Analysts remain sidelined on the stock even as the company continues to benefit from high margins, durable returns on equity, and strong capital generation, supported by disciplined pricing and underwriting execution. At the same time, new product momentum and diversified distribution channels in Japan are helping strengthen long-term premium growth and policy persistency. Combined with healthy liquidity and manageable leverage, these factors provide Aflac with significant financial flexibility to navigate market volatility, invest in growth opportunities, and continue returning capital to shareholders.
Street consensus implies limited upside from current share levels, with more bullish forecasts pointing to potential gains of up to 15%. This optimism is reinforced by discounted cash flow analysis, which suggests AFL’s shares may be trading at an estimated 33% discount to intrinsic value, providing valuation support for long-term investors.
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Investing Takeaway
For income-focused investors, Aflac stands out as a disciplined and shareholder-friendly insurer with a long history of dividend growth and consistent capital returns. The company’s recurring premium model, strong policy retention, and conservative underwriting approach support durable cash flow generation across economic cycles. Aflac also benefits from its resilient Japan franchise, expanding U.S. benefits platform, and rising investment income, which together strengthen earnings stability and provide dividend sustainability.
Beyond dividends, management continues to aggressively repurchase shares while maintaining a strong balance sheet and substantial financial flexibility. Although foreign exchange volatility and investment-market swings can create short-term earnings noise, Aflac’s underlying business remains highly cash generative. For long-term investors seeking a blend of dependable income, steady earnings growth, and disciplined capital allocation, Aflac continues to offer a compelling defensive compounder within the insurance sector.
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Dividend Investor Portfolio
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Portfolio News
▣ ADP (ADP) priced a public offering of $1 billion in 5% senior notes due 2036 as the company plans to use the proceeds for general corporate purposes, including potential share repurchases under its existing buyback program, subject to market conditions. The debt issuance reflects ADP’s continued access to capital markets and provides additional financial flexibility to support capital allocation initiatives while maintaining liquidity for ongoing operations and strategic priorities.
▣ Amgen (AMGN) is further expanding its U.S. manufacturing footprint with an additional $300 million investment to increase capacity at its biologics facility in Juncos, Puerto Rico. The investment builds on the company’s broader manufacturing expansion strategy, following a $900 million investment in Ohio and an earlier $650 million commitment in Puerto Rico since 2025. The continued spending reflects Amgen’s focus on strengthening domestic production capabilities to support long-term demand for its biologic medicines and pipeline products. Separately, Amgen also announced that its next dividend payment is scheduled for June 5, 2026, with an ex-dividend date of May 15.
▣ EOG Resources (EOG) reported strong first-quarter 2026 results, supported by higher production, stronger natural gas prices, and disciplined capital execution. Adjusted earnings rose to $3.41 per share on adjusted net income of $1.8 billion, ahead of analyst expectations. The company generated $3 billion in operating cash flow and $1.5 billion in free cash flow during the quarter.
Production increased 26.8% year over year to 1.38 million barrels of oil equivalent per day, driven by strong operational performance and contributions from acquired assets. Average realized oil prices were $72.47 per barrel, while natural gas prices improved to $3.76 per Mcf (thousand cubic feet). EOG maintained its annual capital expenditure guidance of $6.3 billion to $6.7 billion while reallocating more capital toward oil-focused assets. The company also returned nearly $950 million to shareholders through dividends and share repurchases during the quarter.
▣ ExxonMobil’s (XOM) ex-dividend date is May 15, with the dividend payable on June 10.
▣ Honeywell’s (HON) ex-dividend date is May 15, with the dividend payable on June 05.
▣ Kroger’s (KR) ex-dividend date is May 15, with the dividend payable on June 01.
▣ PepsiCo (PEP) increased its quarterly dividend by 4% to $1.48 per share from the previous dividend of $1.42 per share, continuing the company’s long track record of returning capital to shareholders. The dividend will be paid on June 30, with an ex-dividend date of June 5.
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Recent Trades
None at the moment, although we are considering adding a stock to our portfolio when the market conditions allow for an attractive entry point. Stay tuned.
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Portfolio Attributes
| Dividend Portfolio Yield |
Expected Dividend Growth | Expected Annual Income |
| 3.93% | +6.02% | $6,164.34 |
| Yield-on-Cost Adjusted, Weighted |
Average Analyst 12-Month Growth Outlook | 10K Per Stock at the Time of Purchase |
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Current Portfolio
| Name | EX-Dividend Date | Payment Date | Yield on Cost | Annual DPS |
| Automatic Data Processing (ADP) | Jun 15, 2026 | Jul 01, 2026 | 2.46% | $6.80 |
| Amgen (AMGN) | May 15, 2026 | Jun 05, 2026 | 3.27% | $10.08 |
| BlackRock (BLK) | Jun 05, 2026 | Jun 23, 2026 | 2.61% | $22.92 |
| Bank of Nova Scotia (BNS) | Jul 02, 2026 | Jul 29, 2026 | 5.98% | $3.21 |
| EOG Resources (EOG) | Jul 16, 2026 | Jul 30, 2026 | 3.06% | $4.08 |
| ExxonMobil (XOM) | May 15, 2026 | Jun 10, 2026 | 3.64% | $4.12 |
| Honeywell International (HON) | May 15, 2026 | Jun 05, 2026 | 2.39% | $4.76 |
| IBM (IBM) | Aug 06, 2026 | Sep 10, 2026 | 3.16% | $6.76 |
| JPMorgan Chase (JPM) | Jul 03, 2026 | Jul 31, 2026 | 3.43% | $6.00 |
| Kroger (KR) | May 15, 2026 | Jun 01, 2026 | 3.08% | $1.40 |
| Cisco Systems (CSCO) | Jul 02, 2026 | Jul 23, 2026 | 2.22% | $1.68 |
| PepsiCo (PEP) | Jun 05, 2026 | Jun 30, 2026 | 3.8% | $5.69 |
| Philip Morris (PM) | Jun 29, 2026 | Jul 15, 2026 | 6.06% | $5.88 |
| Qualcomm (QCOM) | Jun 05, 2026 | Jun 26, 2026 | 2.44% | $3.68 |
| VICI Properties (VICI) | Jun 18, 2026 | Jul 10, 2026 | 5.22% | $1.8 |
| Verizon (VZ) | Jul 09, 2026 | Aug 03, 2026 | 6.09% | $2.76 |
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Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment, and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
