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:UNH) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 13th of September will not receive the dividend, which will be paid on the 24th of September.
UnitedHealth Group's next dividend payment will be US$1.08 per share, and in the last 12 months, the company paid a total of US$4.32 per share. Looking at the last 12 months of distributions, UnitedHealth Group has a trailing yield of approximately 1.9% on its current stock price of $229. If you buy this business for its dividend, you should have an idea of whether UnitedHealth Group's dividend is reliable and sustainable. So we need to investigate whether UnitedHealth Group can afford its dividend, and if the dividend could grow.
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. Fortunately UnitedHealth Group's payout ratio is modest, at just 28% of profit. A useful secondary check can be to evaluate whether UnitedHealth Group generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 35% of the free cash flow it generated, which is a comfortable payout ratio.
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.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, UnitedHealth Group's earnings per share have been growing at 19% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. UnitedHealth Group has delivered 64% dividend growth per year on average over the past 10 years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
From a dividend perspective, should investors buy or avoid UnitedHealth Group? UnitedHealth Group has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. It's a promising combination that should mark this company worthy of closer attention.
Wondering what the future holds for UnitedHealth Group? See what the 16 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.