Thanks to Europe, This Solid Dividend Is Cheap

Dividend stocks are usually safe havens during uncertain economic times. Sadly, for companies located inside the Eurozone, that simply hasn't been the case this year. Shares of European dividend stalwarts like France Telecom (NYSE: FTE  ) and Telefonica (NYSE: TEF  ) have both shed a quarter of their value this year, despite offering outsized dividends.

There's one dividend-paying company that actually does no business at all in Europe, yet has still suffered in 2011 because of the ongoing crisis: Aflac (NYSE: AFL  ) . Read below, and you'll see why I think shares may be trading at a significant discount today. At the end, I'll offer you access to 11 more of our best dividend ideas as well.

The underlying business
Everyone is familiar with the Aflac duck, but beyond that, few know what this supplemental insurance company actually does. Like other insurers, they offer protection against losses; with Aflac, customers are buying policies to offer supplemental income should they somehow lose that income.

The company only really does business in two countries: Japan and the U.S. Contrary to what you may think, the vast majority of their business (83%) is in Japan. That's why the growth in premiums paid to the company from the country is so impressive.

�	2010 Premiums	2011 Premiums	Change
Japan	�$9,849	�$11,490	17%
U.S.	�$3,438	�$3,547	3%

Source: SEC filings. Figures in millions for the first nine months of 2010 and 2011.

While it'd be nice to see more traction in the American market, Japan is clearly the driver of growth right now.

Then, take a second to consider how cheap the stock is by taking a look at the metrics below. By just about every measure, Aflac appears to be a super bargain.

P/E	10.8
Forward P/E	6.4
PEG Ratio	0.6
Price-to-Book	1.56
Dividend Yield	3.2%
Payout Ratio	30%

Source: Yahoo! Finance.

And all this while offering a solid 3.2% dividend yield that the company uses only 30% of their earnings to pay out -- meaning there's tons of room for the dividend to grow.

With all of these factors staring investors in the face, it's fair to ask: Why is the stock trading so cheap?

Back to Europe
Insurance companies don't just take in premiums, sit on them, and then pay them out when claims come in. Instead, they take a portion of those premiums -- called "the float"-- and invest it in relatively safe vehicles so they can turn an extra profit.

For years, investing in bonds, sovereign debt, and banking debentures were fairly safe avenues to a guaranteed return -- and that's exactly what Aflac did with its float.

As we all know by know, that all changed this year. The eurozone crisis has cut investor confidence in Europe off at the knees. MF Global (OTC: MFGLQ) collapsed in dramatic fashion because of bad bets on Europe. And Aflac had a good chunk of their float invested in European sovereign debt.

Changes to the balance sheet
When things started to get hairy earlier this year, Aflac took a hard look at its investments. Management saw money invested in National Bank of Greece (NYSE: NBG  ) , as well as in the governments of Greece and Portugal, and decided to cash out of those investments. Interestingly, the company chose to keep its position in the troubled National Bank of Ireland (NYSE: IRE  ) , saying that they, "believe [the bank] has the ability to meet its obligations to us."

While investors had to cringe as the company swallowed a $1.1 billion loss on those investments, Aflac is now free and clear of any investments in Greece or Portugal, and only has limited exposure to Ireland.

While you would think this would hearten some investors, that simply hasn't been the case. Institutional investors are sitting on the sidelines, waiting for the picture to clear up in Europe before jumping back in.

But where some look and see fear, others smell opportunity. If you believe the eurozone will still be intact -- and out of recession -- by the end of 2012, Aflac seems to me like a great investment right now. I own shares myself, and will be initiating a bullish CAPScall on my CAPS profile, too.

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