UnitedHealth Increases Shareholder Returns - Analyst Blog

UnitedHealth Group Inc. UNH has hiked its quarterly dividend payout 34% to 37.5 cents per share. This affirms the U.S. health insurer's commitment to pump up its shareholders' returns.

Shareholders whose names are reflected on the company's book of records on Jun 16, will have their pockets filled with this meatier dividend on Jun 25.

The dividend hike comes riding 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 $1.4 billion, up 34% year over year.

UnitedHealth has regularly been paying dividends for the past several years.

The insurer which traditionally favors share buybacks and mergers as ways to deploy capital, has also ramped up its share repurchase authorization by $37 million.  With already $63 million share repurchase authorization in hand, the company now has $100 million to buy back over time. This translates into 10% of the total shares outstanding.

The company has been fraught with challenges so far this year thanks to the Health Care Reform. Its first-quarter earnings per share were also lukewarm, coming in just a penny ahead of the estimate, while losing 5.2% year over year. In the backdrop of a difficult operating environment which is expected to put a cap on earnings, the insurer is using its financial management techniques to anchor its investors and buttress their confidence.

UnitedHealth's 5-year average dividend yield stands at 1.2%, markedly higher than the industry average yield of 0.9%. Also, the dividend growth rate of 68.25% for the industry pales in comparison with that of 103.71% for the insurer, over the same time frame.

In Jun 2013, the health insurer announced a hike of 32% in its quarterly dividend to 28 cents per share.

Within its ilk, UnitedHealth is the first to announce a dividend hike this year. While WellPoint Inc. WLP increased its dividend last year in February, it chooses to maintain conservatism this year, with no news on this front.   

UnitedHealth retains a Zacks Rank #4 (Sell). However, better-ranked stocks in the industry includes Zacks Rank #1 (Strong Buy) Select Medical Holdings Corporation SEM and Triple-S Management Corporation GTS are worth considering.