Image Shown: We include UnitedHealth Group Inc as an idea in our Dividend Growth Newsletter portfolio. The health care giant recently boosted its quarterly payout by 16% on a sequential basis.
By Callum Turcan
Recently, the US-based health care insurance, services, and solutions provider UnitedHealth Group Inc (UNH) boosted its quarterly dividend by 16% to $1.45 per share or $5.80 on an annualized basis. On a forward-looking basis, shares of UNH yield ~1.5% as of this writing. We include UnitedHealth Group as an idea in the Dividend Growth Newsletter portfolio as its forward-looking dividend coverage is rock-solid.
Strong Payout Coverage
UnitedHealth Group’s Dividend Cushion ratio sits at 3.1, which incorporates our expectations the firm will significantly grow its payout in the coming years. The firm has “EXCELLENT” Dividend Safety and Dividend Growth ratings. Our proprietary Dividend Cushion ratio is a useful tool for income seeking investors. The ratio can be used to assess the long term risk to the sustainability and growth of the payout.
To derive the Dividend Cushion ratio, we start by forecasting the company’s future free cash flows and dividend obligations over the next five full fiscal years. We define free cash flows as net operating cash flows less capital expenditures. Then we take the firm’s balance sheet considerations at the end of its latest fiscal year into account, with a net cash position representing a source of funds for future dividend obligations while a net debt position drains funds that could have been used to cover its future payouts. The numerator is represented by the company’s forecasted future free cash flows plus/minus its net cash/debt position, while the denominator is represented by its forecasted dividend obligations.
A cash flow waterfall for UnitedHealth Group’s Dividend Cushion ratio can be viewed in the upcoming graphic down below.
Image Shown: UnitedHealth Group’s forward-looking dividend coverage is rock-solid due to its Dividend Cushion ratio sitting at 3+.
Concluding Thoughts
We continue to like UnitedHealth Group as an idea in the Dividend Growth Newsletter portfolio. The firm is a tremendous free cash flow generator with ample room to keep growing its payout going forward. In conjunction with its first quarter earnings report, UnitedHealth Group raised its full-year guidance for 2021. We covered the company’s promising outlook and strong financials in our April 2021 article UnitedHealth Group Raises Guidance After Stellar Earnings Report which can be viewed here.
Downloads
UnitedHealth Group’s 16-page Stock Report (pdf) >>
UnitedHealth’s Dividend Report (pdf) >>
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Callum Turcan does not own shares in any of the securities mentioned above. Johnson & Johnson (JNJ) and Health Care Select Sector SDPR Fund ETF (XLV) are both included in Valuentum’s simulated Best Ideas Newsletter portfolio and simulated Dividend Growth Newsletter portfolio. Vertex Pharmaceuticals Inc (VRTX) is included in Valuentum’s simulated Best Ideas Newsletter portfolio. UnitedHealth Group Inc (UNH) is included in Valuentum’s simulated Dividend Growth Newsletter portfolio. Vanguard Consumer Staples ETF (VDC) is included in Valuentum’s simulated High Yield Dividend Newsletter portfolio. Some of the other companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.