Aetna: An Analysis of the Health Insurance Giant (Part 13 of 18)
Shareholder value
Aetna creates value for its shareholders by distributing dividends, repurchasing shares, and focusing on both organic and inorganic growth.
Over the period from 2010 to 2014, Aetna distributed dividends worth $1.0 billion, repurchased shares worth $7.4 billion, and invested around $10.8 billion in targeted M&As (mergers and acquisitions). In 2014, Aetna earned dividends worth $1.5 billion from its subsidiaries and returned the cash to shareholders in the form of dividends and share repurchases.
Share repurchases
Health insurance companies such as Aetna (AET), Humana (HUM), UnitedHealth Group (UNH), and Cigna (CI) have increasingly implemented share repurchase programs to return cash to shareholders. Share repurchases also lead to an increase in EPS (earnings per share) in the future financial periods, as earnings are distributed among fewer shares, adding value to remaining shareholders.
Dividends
In 2014, Aetna returned about $320.6 million as dividends to its shareholders. Compared to its peers in the health insurance industry (XLV), the company had the highest dividend yield amounting to 1.6%. The dividend yield is calculated by dividing the total dividends distributed in a year with the market capitalization of the company. Companies distributing dividends regularly are a good investment vehicle for individuals seeking regular income.
Organic and inorganic growth
Aetna invests capital to improve efficiency of its provider network and develops health technology capabilities.The company also invests to improve the quality of its Medicare program, expand its Medicaid program, enter new markets like dual eligibles, and improve the cost-efficiency of its commercial segment. The company expects to generate more than 20% returns on its invested capital.
Aetna has acquired companies such as Coventry Health, InterGlobal, and bswift to increase its membership in the US and international markets and strengthen the company’s health technology product suite. The strategy of targeted organic and inorganic growth is expected to generate sustainable profits for the company.
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