U.S. health insurer
UnitedHealth Group Inc.
) announced that its board of directors has authorized a
substantial hike of 32% in its quarterly dividend to 28 cents per
The increased dividend will be paid on Jun 26, 2013, to the
shareholders of record on Jun 17.
The dividend hike is supported by UnitedHealth's strong
balance sheet with a moderate leverage and its ability to
generate significant cash flow. The recent quarter saw a cash
flow of $1.6 billion.
UnitedHealth has been regular at paying dividend and has been
doing so for the past several years. The company's dividend yield
stands at 1.4% which is substantially higher than the industry
average yield of 0.88%.
Previously, in Jun last year, UnitedHealth announced a
substantial hike of 30% in its quarterly dividend to 21.25 cents
UnitedHealth has always been in favor of share buybacks and
mergers as a way to deploy capital. Therefore, the company's
board has also approved the repurchase of 110 million shares,
which is about 10% of UnitedHealth's outstanding shares.
UnitedHealth has replaced its current share repurchase
authorization. At the end of May 2013, there were 63 million
shares remaining under the previous authorization plan.
The huge investments made by the company, over the past couple
of years, will incrementally benefit earnings going forward.
These investments have been made in higher margin service
segments, which have the potential of driving above-average
long-term earnings growth.
This indeed shows room for incremental dividend raises going
forward. Additionally, a strong balance sheet, moderate debt
capital, a highly conservative investment portfolio and
significant free cash flow generation will help UnitedHealth to
sustain the attractive dividend payout. Share repurchase activity
will further add to shareholder returns.
In Feb another health insurer
) hiking its quarterly dividend by 30% to 37.5 cents per
UnitedHealth retains a Zacks Rank #4 (Sell). Other stocks like
Health Net Inc.
), with Zacks Rank #2 (Buy) are worth considering.
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