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The board of UnitedHealth Group Incorporated (NYSE:UNH) has announced that the dividend on 27th of June will be increased to $1.88, which will be 14% higher than last year's payment of $1.65 which covered the same period. This makes the dividend yield about the same as the industry average at 1.3%.
See our latest analysis for UnitedHealth Group
UnitedHealth Group's Earnings Easily Cover The Distributions
Solid dividend yields are great, but they only really help us if the payment is sustainable. However, prior to this announcement, UnitedHealth Group's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
The next year is set to see EPS grow by 43.1%. If the dividend continues on this path, the payout ratio could be 25% by next year, which we think can be pretty sustainable going forward.
UnitedHealth Group Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2013, the annual payment back then was $0.85, compared to the most recent full-year payment of $6.60. This implies that the company grew its distributions at a yearly rate of about 23% over that duration. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that UnitedHealth Group has grown earnings per share at 14% per year over the past five years. UnitedHealth Group definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
UnitedHealth Group Looks Like A Great Dividend Stock
Overall, a dividend increase is always good, and we think that UnitedHealth Group is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for UnitedHealth Group that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.