3 Reasons UnitedHealth Group Is One of the Best Dividend Stocks You Can Own
Are you looking for a good dividend stock to own? You might want to take a closer look at UnitedHealth Group (NYSE: UNH). It's a top healthcare company to invest in, and while its yield may not look all that high, it can make for a solid investment, especially if you hang on to it for the long term.
There are plenty of great reasons why dividend investors should buy this underrated stock today. Here are three worth mentioning:
1. UnitedHealth has significantly increased its payouts over the years
Dividend Kings have exceptionally long track records of paying and growing dividends, making them tempting choices for a certain class of investors. Income investors see those long dividend streaks as proof that a stock is a safe income investment. But in many cases, Dividend Kings make only modest increases to their payouts, all for the sake of keeping the streak going, even if their earnings numbers aren't all that strong.
UnitedHealth may not have a decades-long record of increasing its dividend, but it has shown that it prioritizes dividend growth over the past 14 years of its payouts. It has put through many large increases to its dividend in recent years, and investors who have owned the healthcare stock for five years have seen their dividend income nearly double.
UNH Dividend data by YCharts.
While its current yield of 1.4% may look underwhelming (it's roughly equal to the S&P 500 average), it's only average largely because the stock price has appreciated 27% over the past year. When factoring in dividend growth, investors will be a lot better off with UnitedHealth's dividend over the long haul.
2. UnitedHealth has sound financials
One thing investors need to consider when looking at a potential dividend investment is just how strong the underlying business is and whether it can sustain its dividend. With UnitedHealth, the risk of not paying or even increasing its dividend is minimal. The stock has a manageable payout ratio of just over 50%. If not for a sizable $7 billion charge it incurred due to the sale of its Brazilian operations earlier this year, that percentage would be even lower.
Over the years, the business has generated impressive growth. This past year, the company reported revenue totaling $368 billion, up nearly 30% from the $285 billion it posted back in 2021. And it has experienced a similar increase in its earnings during that time, with profits jumping from $17 billion to more than $22 billion. UnitedHealth is a growth machine, and it's in an excellent position to continue growing its top and bottom lines in the long run.
3. UnitedHealth's pursuit of acquisitions can accelerate its growth
It isn't enough for a business to be in good shape today; investors also need to feel confident about the path it's on and to know that it can continue growing. UnitedHealth has often looked to acquisitions to help diversify its business and strengthen its overall growth prospects.
The company acquired home-health business LHC Group last year and hopes to close its acquisition of Amedisys, which is also involved with providing home-health services, in the months ahead. UnitedHealth projects that in the long run, its earnings should be able to grow by between 13% and 16% per year. Acquisitions and expanding its services will go a long way in being able to continually grow its bottom line, along with the expansion of its Medicare business. If the company's earnings can increase by double-digit percentages, it's also probable that not only will the dividend be safe, but that more dividend hikes could be coming as well.
A great dividend stock at a modest valuation
UnitedHealth is a top dividend stock and arguably a good growth stock to own as well. And investors don't have to pay a huge premium for it, either. At a forward price-to-earnings multiple of 21, it's trading at a slightly lower multiple than the average stock in the Health Care Select Sector SPDR Fund, which trades at 22 times future earnings.
UnitedHealth stock is a no-brainer buy for long-term investors as you can benefit from both its long-term growth (and the rising share price that is sure to follow) and the growing dividend income you'll collect from the investment over the years.Should you invest $1,000 in UnitedHealth Group right now?
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*Stock Advisor returns as of September 3, 2024David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.
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