Safe and Sound

As you are surely aware, the stock market has entered a period of extreme volatility. The U.S. stock market suffered historic losses on Monday, but as I write on Tuesday morning the S&P 500 has bounced back by more than 2 percent, although Chinese equities continue to skid.

In times like these, are they any stocks you can add to your portfolio with confidence? Yes, there will always be some well-established firms in less volatile industries that are worth watching.

For example, Aflac (NYSE: AFL) is the top U.S. provider of supplemental health and life insurance. Insurance companies tend to be rather reliable if unspectacular investments (at least they’re supposed to be), Aflac has been run on steady and profitable principles for years.

Aflac has established a strong brand and marketing presence through its ubiquitous “talking duck” TV commercials in the U.S. But many Americans are unaware that it is also a major player in the insurance market in Japan, where it derives about 80 percent of its earnings and more than 70 percent of its revenue.

Aflac individual and group insurance products provide protection to more than 50 million people worldwide. The majority of Aflac’s new customers in the U.S. come through the small business market, where hiring is only now beginning to pick up again following the seemingly endless economic doldrums of the last few years. The stock has had its ups and downs as a result, but it seems ready for another extended rise.

Aflac recently revealed that it has introduced a new and improved accident product – Aflac Accident Advantage. The new supplemental accident insurance policy offers more flexibility for individual policyholders to choose different levels of coverage as well as several industry-leading and enhanced benefits to help further protect consumers from high out-of-pocket costs related to accidents and injuries.

According to the Centers for Disease Control, there are more than 80 million injury-related visits to doctors’ offices, hospital outpatient departments and emergency-treatment facilities in the U.S. each year. The National Safety Council indicates that the average medical expense for an accidental injury is $5,500.

Yet, the reality is that 52 percent of American workers have less than $1,000 on hand to pay out-of-pocket expenses associated with unexpected serious illnesses or accidents, and 28 percent have less than $500 available.

To help cover this gap, supplemental insurance policies like Aflac’s Accident Advantage can provide cash benefits that can be used to help pay deductibles, copayments and everyday living expenses, including rent or mortgage, utilities, child care or credit card debt.

Despite its dominant position in its market and solid fundamentals, the price-earnings ratio for this stock is currently under 10. Aflac’s market cap is almost $30 billion.

Another attractive aspect of this company is that it has raised its dividend for 32 years in a row, so yield should definitely be taken into account when figuring the return on investment.

The core of the firm’s business is to design insurance policies that can be used to help with out-of-pocket expenses not covered by existing major medical coverage of U.S. consumers. It is continuing to develop new products that meet the changing needs of the market.

Investors who are aware of Aflac’s large presence in Japan may be skeptical about the possibility of expansion there. But while Japan is certainly not experiencing the explosive growth of the 1970s and 1980s, it remains an extremely prosperous country whose residents tend to be avid buyers of insurance.

Total revenue was down in the most recent quarter, but much of that relates to the exchange rate since so much of the firm’s business is on the other side of the Pacific. Revenue growth at Aflac’s U.S. operations has risen consistently in recent quarters.

Once you take into account the currency fluctuations, Aflac Japan produced solid results for both the quarter and the year.

The company’s top goal, of course, is to meet policyholder obligations. To do that, it seeks to achieve a high degree of confidence in allocating capital to shareholders while also pursuing investment strategies that enhance overall income growth.

The insurance sector has been overhauled as much as any business segment during the last six years, but Aflac’s consistent performance – remember that steadily rising dividend – should see it through any changes that arrive in the next several years.

Tom Scarlett is an investment analyst at Personal Finance and its parent web site Investing Daily.