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UnitedHealth Boosts Investors' Value

Zacks Equity Research

U.S. health insurer UnitedHealth Group Inc. ( UNH) announced that its board of directors has authorized a substantial hike of 32% in its quarterly dividend to 28 cents per share.


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 per share.


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 WellPoint Inc. ( WLP) hiking its quarterly dividend by 30% to 37.5  cents per share.


UnitedHealth retains a Zacks Rank #4 (Sell). Other stocks like Centene Corp. ( CNC) and Health Net Inc. ( HNT), with Zacks Rank #2 (Buy) are worth considering.

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