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There's Safety in Insurance Stocks

Stocks in this article: AFLMETHIGTRVBRK.B

NEW YORK ( TheStreet) -- There's a great deal of money to be made in the business of risk mitigation, a.k.a. "risk management".

It's not the kind of business where you will see gigantic leaps in quarterly earnings growth. However, it does involve a steady flow of multiple revenue streams that offer billions of investment dollars with which these companies can invest and reward shareholders.

I'm speaking of the insurance business -- the largest business in the world when measured by revenue.

Almost everyone with anything to protect -- a home, a car, a business, a career or a life -- spends hundreds if not thousands of dollars each year buying insurance that we hope we won't need.

The insurance companies collect the premiums month after month, year after year, and are able to use that money to increase corporate profits. Their aim is to collect more than they have to pay out in claims, and keep the remainder. It's a win-win business formula.

Take a company like Aflac (AFL), which reports second-quarter 2012 quarterly earnings on Tuesday, July 24.

It brings in $49 billion to $50 billion a year in revenue. That's almost $50 per share, and the company has been growing its quarterly revenue at a 20% year-over-year clip.

Aflac pays a 3% dividend to shareholders, which is a very sustainable payout ratio of only 25%. How does it keep firing on all financial cylinders?

American Family Life Assurance Company of Columbus (that's what Aflac stands for) provides supplemental health and life insurance for individuals and groups.

The company offers various voluntary supplemental insurance products, including cancer plans, general medical indemnity plans, medical/sickness riders, care plans, living benefit life plans, ordinary life insurance plans and annuities, in its Japan division.

It also provides loss-of-income products, such as life and short-term disability plans; and products designed to protect individuals from depletion of assets, which comprise hospital indemnity, fixed-benefit dental, vision care, accident, cancer, critical illness/critical care, and hospital intensive care plans, in the United States. This is what I mean by "multiple streams of income" and revenues.

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