We recently compiled a list of the 12 Most Reliable Dividend Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where UnitedHealth Group Incorporated (NYSE:UNH) stands against the other most reliable dividend stocks to buy.
The year 2024 proved favorable for dividends, even though the Dividend Aristocrats Index lagged behind the broader market. Throughout the year, US companies consistently increased or upheld their dividend payouts. In addition, several major tech firms began offering dividends, signaling to investors that it’s possible for a company to focus on both growth and shareholder returns. By September 30, 2024, approximately 80% of the companies in the S&P index were distributing dividends, a figure that has remained fairly stable over the past decade. Notably, nearly 24% of these dividend-paying firms were in the technology sector, a significant increase from 13% ten years ago. Sectors such as healthcare and industrials also experienced notable growth in the number of companies offering dividends. This broader distribution of dividends has expanded the range of investment opportunities, giving equity-income investors more access to high-growth, dynamic, and innovative companies. Given these developments, analysts remain optimistic about their performance heading into 2025.
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Analysts note that, from a broad perspective, earnings growth has traditionally been the primary driver of dividends. Last year saw strong earnings growth, and they anticipate an even better performance in 2025. Goldman predicts an 11% increase in earnings per share for this year, up from an estimated 8% in 2024. This is expected to result in a 7% rise in dividends, compared to a 6% increase last year. Ohsung Kwon, a US equity strategist at BofA Securities, offers a more optimistic outlook, forecasting a 12% boost in dividends this year, fueled by accelerating earnings growth.
Dividends historically accounted for 40% of the market’s total return from 1936 to 2012 but have contributed only 16% over the past ten years, according to a research note from BofA Securities released late last year. Looking forward, Kwon anticipates that dividends will have a more significant impact on total returns compared to the previous decade.
Dividends hold particular significance, especially as the broader market has experienced consecutive gains of over 20%, a scenario not seen since the late 1990s. Moreover, the low payout ratio, currently at 29% compared to the historical average of 50%, suggests there is considerable potential for companies to increase their dividend payouts. Kwon pointed out that another key factor supporting dividend investing is the growing number of retired baby boomers seeking income. With cash products yielding around 4%, there is a strong demand for dividends, as investors are looking for immediate cash returns and are pressuring companies to increase their dividend distributions.
This optimism about dividend stocks is largely rooted in their historical performance, as they have been instrumental in reducing overall portfolio volatility and can help cushion losses when stock prices decline. Research indicates that dividend-paying stocks often outperform their non-dividend-paying counterparts during bear markets, such as during the tech bubble burst in the early 2000s and the global financial crisis. This may be because companies that pay dividends are typically larger, more established, and more profitable, making them more resilient than the broader market.
From October 2019 to September 2024, a period marked by significant fluctuations in the market’s total performance, equity income funds demonstrated lower volatility and reduced downside risk compared to the broader market. Given this, we will discuss the most reliable dividend stocks to invest in.
Our Methodology
For this list, we used a stock screener to identify companies with a history of dividend growth spanning over 10 years. From this group, we selected companies offering dividend yields of at least 1% as of January 12. From that selection, we identified the ten stocks that hedge funds favored the most during the third quarter of 2024, based on data from Insider Monkey’s database. The stocks are ranked in ascending order of hedge funds having stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
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UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders: 112
UnitedHealth Group Incorporated (NYSE:UNH) is an American multinational health insurance company. It reported strong earnings in the third quarter of 2024, with revenue of $100.8 billion, marking a 9.16% increase from the same period last year. Its domestic commercial offerings have experienced notable growth, adding 2.4 million new consumers this year. The projected net earnings for the full year 2024 are estimated at $15.50 to $15.75 per share, factoring in the sale of its South American operations earlier in the year and the effects of the Change Healthcare cyberattack.
PGIM Jennison Health Sciences Fund mentioned UNH in its Q3 2024 investor letter. Here is what the firm has to say:
“UnitedHealth Group Incorporated (NYSE:UNH) is the largest health care services company in the U.S. The company offers healthcare benefits to Americans who receive insurance from employers or government-based programs such as Medicare and Medicaid. Half of the company is represented from non-benefits businesses under the Optum umbrella. This includes a technology business that helps hospitals, pharma companies, and other payors. It also includes a fast-growing provider business where Optum owns surgery centers and urgent care centers. The company’s primary care business continues to grow and it’s participating in the emerging trend of primary care taking on risk and acting like an insurance company. Finally, UnitedHealth owns a drug benefits manager. The company continues to have high quality and well-positioned businesses. In the first half of ’24, UnitedHealth has beat earnings expectations and confirmed full year financial guidance. While medical costs have pressured results, the company has cut a lot of spending to support earnings. We have also seen volatility in the stock related to political dynamics; a view that Republicans are better for this group helped support the stock in June and July and a moderation in policy views from the democratic nominee also helped support the stock. Future catalysts for the company and the stock include potentially stabilizing cost trend, a calmer political environment, and visibility into the company’s long-term earnings growth targets.”
UnitedHealth Group Incorporated (NYSE:UNH) holds a strong dividend history. The company started paying annual dividends in 1990 and then shifted to quarterly payouts in 2010. Since then, it has raised its payouts every year, which makes UNH one of the best dividend stocks on our list. The company offers a quarterly dividend of $2.10 per share and has a dividend yield of 1.61%, as of January 12.
UnitedHealth Group Incorporated (NYSE:UNH) was included in 112 hedge fund portfolios at the end of Q3 2024, compared with 114 in the previous quarter, according to Insider Monkey’s database. The stakes owned by these funds are worth over $15 billion. With over 3.7 million shares, GQG Partners was the company’s leading stakeholder in Q3.
Overall, UNH ranks 2nd on our list of the most reliable dividend stocks to buy according to hedge funds. While we acknowledge the potential of UNH as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than UNH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.