UnitedHealth (UNH) Hikes Dividend By 25%, Stock Climbs

UnitedHealth Group Inc. (NYSE:UNH) has once again cheered its investors by instituting a quarterly dividend hike of 25%. The new dividend of 62.5 cents per share will be paid on Jun 28, to shareholders of record as of Jun 17, 2016.

This increases the yield (measured as annual divided by the price per share) to 1.8% from 1.4% based on the closing price on Jun 8. This increased dividend payout is higher than the current yields offered by the company’s biggest competitors – Humana Inc. (NYSE:HUM) , Cigna Corp. (NYSE:CI) , Aetna Inc. (NYSE:AET) .

The dividend hike comes on the back of UnitedHealth’s strong balance sheet with moderate leverage and its ability to generate significant cash flows. The last concluded quarter saw a cash flow of $2.3 billion, up 2.2% year over year.

UnitedHealth has regularly been paying dividends over the past several years. This dividend hike once again affirms the U.S. health insurer’s commitment to return more value to its shareholders.

The insurer’s five-year average dividend yield of 1.44% is higher than the industry average yield of 1.2%. Also, the five-year dividend growth rate of 26% for the industry is lower than the insurer’s 36% over the same period.
In Jun 2015, the health insurer announced a hike of 33% in its quarterly dividend to 50 cents per share.

This dividend action further cements investor’s confidence in the health insurer. The company was successful in keeping aside investor worries about losses accruing in its individual insurance business on public exchanges by exiting a number of unprofitable exchanges. This has helped the company to axe its losses related to this business that would have pulled down the overall earnings. Moreover, the company raised its earnings estimates for 2016 on the back of growth in its health services and health benefits’ segments.

UnitedHealth, the leader in the health insurance industry, also remains sought after in the investing community since it offers the best of both worlds– dividend income plus earnings growth.

This news of dividend hike led the stock to gain 2.53% in yesterday’s trading session. The stock also hit a new 52-week high of $140.89.

UnitedHealth currently carries a Zacks Rank # 2 (Buy).