Yahoo Finance UnitedHealth Group Incorporated (NYSE:UNH) Looks Like A Good Stock, And It's Going Ex-Dividend Soon
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see UnitedHealth Group Incorporated (NYSE:UNH) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 12th of March in order to be eligible for this dividend, which will be paid on the 23rd of March.
UnitedHealth Group's next dividend payment will be US$1.25 per share, on the back of last year when the company paid a total of US$5.00 to shareholders. Looking at the last 12 months of distributions, UnitedHealth Group has a trailing yield of approximately 1.4% on its current stock price of $347.1. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether UnitedHealth Group can afford its dividend, and if the dividend could grow.
View our latest analysis for UnitedHealth Group
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. UnitedHealth Group paid out a comfortable 30% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 23% of its free cash flow as dividends last year, which is conservatively low.
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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see UnitedHealth Group's earnings have been skyrocketing, up 22% per annum for the past five years. UnitedHealth Group is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, UnitedHealth Group has lifted its dividend by approximately 26% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Is UnitedHealth Group an attractive dividend stock, or better left on the shelf? We love that UnitedHealth Group is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. There's a lot to like about UnitedHealth Group, and we would prioritise taking a closer look at it.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. In terms of investment risks, we've identified 2 warning signs with UnitedHealth Group and understanding them should be part of your investment process.
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.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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