Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that UnitedHealth Group Incorporated ((NYSE:UN)H) is about to go ex-dividend in just four days. You will need to purchase shares before the 12th of March to receive the dividend, which will be paid on the 23rd of March.
UnitedHealth Group’s upcoming dividend is US$1.25 a share, following on from the last 12 months, when the company distributed a total of US$5.00 per share to shareholders. Based on the last year’s worth of payments, UnitedHealth Group stock has a trailing yield of around 1.4% on the current share price of $347.1. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! As a result, readers should always check whether UnitedHealth Group has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for UnitedHealth Group
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That’s why it’s good to see UnitedHealth Group paying out a modest 30% of its earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Luckily it paid out just 23% of its free cash flow last year.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It’s encouraging to see UnitedHealth Group has grown its earnings rapidly, up 22% a year for the past five years. UnitedHealth Group is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. UnitedHealth Group has delivered 26% dividend growth per year on average over the past 10 years. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Should investors buy UnitedHealth Group for the upcoming dividend? We love that UnitedHealth Group is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. UnitedHealth Group looks solid on this analysis overall, and we’d definitely consider investigating it more closely.
On that note, you’ll want to research what risks UnitedHealth Group is facing. For example, we’ve found 2 warning signs for UnitedHealth Group that we recommend you consider before investing in the business.
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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