UnitedHealth Group Incorporated ((NYSE:UN)H) has announced that it will be increasing its dividend on the 29th of June to US$1.45. This takes the annual payment to 1.3% of the current stock price, which is about average for the industry.
See our latest analysis for UnitedHealth Group
UnitedHealth Group’s Earnings Easily Cover the Distributions
Solid dividend yields are great, but they only really help us if the payment is sustainable. However, prior to this announcement, UnitedHealth Group’s dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.
Over the next year, EPS is forecast to expand by 3.2%. If the dividend continues on this path, the payout ratio could be 34% by next year, which we think can be pretty sustainable going forward.
UnitedHealth Group Has A Solid Track Record
The company has an extended history of paying stable dividends. The first annual payment during the last 10 years was US$0.50 in 2011, and the most recent fiscal year payment was US$5.80. This implies that the company grew its distributions at a yearly rate of about 28% over that duration. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. UnitedHealth Group has impressed us by growing EPS at 23% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.
UnitedHealth Group Looks Like A Great Dividend Stock
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we’ve identified 2 warning signs for UnitedHealth Group that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.
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