UnitedHealth Group Inc. (NYSE:UNH) offers a much larger mix of successful products and programs than the typical health insurance company and as a result has good growth potential, even though it is a very large company. UnitedHealth Group Inc. (NYSE:UNH) is currently not in the dividend achiever index, but the company has boosted its dividend significantly over the last several years including its recently announced 32% dividend increase.
Aflac is a much smaller company than UnitedHealth Group, and due to its impressive branding success, I believe the company has enormous growth potential. Down the road, I believe that AFLAC Incorporated (NYSE:AFL) could become as diverse and successful as UnitedHealth Group Inc. (NYSE:UNH) by expanding its existing policy types as well as initializing new programs such as wellness services. Also, the sky is the limit if Aflac manages to expand successfully into other global locations in addition to the U.S. and Japan.
The rest of the story
AFLAC Incorporated (NYSE:AFL), Medtronic, Inc. (NYSE:MDT), Stryker Corporation (NYSE:SYK), and UnitedHealth Group Inc. (NYSE:UNH) all have a long history of delivering earnings growth, which has allowed these companies to reward their shareholders with regular dividend increases. The following chart illustrates their financial results over the last decade:
| 2012 revenue | 10-yr share price growth | 10-yr revenue growth | 10-yr earnings growth | 10-yr dividend growth | Dividend yield | Current P/E | Payout ratio | |
| AFL | $25.4 billion | 62% | 122% | 280% | 350% | 2.5% | 8.7 | 21% |
| MDT | $16.2 billion | 20% | 78% | 74% | 250% | 2.1% | 15.2 | 31% |
| SYK | $8.7 billion | 91% | 155% | 210% | 1400% | 1.6% | 20.6 | 29% |
| UNH | $110.6 billion | 155% | 284% | 200% | 14,800% | 1.75% | 12.4 | 20% |
Ten years ago, Aflac’s dividend yield was 1%, Medtronic’s was 0.6%, Stryker’s was 0.2%, and UnitedHealth Group’s was 0.03%. However, if an investor would have purchased shares of these companies ten years ago and held them until today, their effective yield based on the initial purchase price would be 5.2% for AFLAC Incorporated (NYSE:AFL), 2.5% for Medtronic, Inc. (NYSE:MDT), 3% for Stryker Corporation (NYSE:SYK), and 4.8% for UnitedHealth Group Inc. (NYSE:UNH). This is an example of how your effective yield will grow over time when investing in dividend achiever companies. All four of these companies have relatively low payout ratios, and I anticipate strong future dividend growth from them.
As you can see from the table, the share price of each of these companies has significantly lagged earnings growth over the last decade. In addition, they all have relatively low P/Es, especially Aflac. As a result, I believe that now is an attractive time to invest in these companies.
The Foolish summary
Components of the dividend achiever index are growing, reliable, and shareholder-friendly businesses that can become multi-baggers in the long term for patient investors. AFLAC Incorporated (NYSE:AFL), Medtronic, Inc. (NYSE:MDT), and Stryker Corporation (NYSE:SYK) are attractive dividend achievers that are worthy of being included as part of a diverse, well-managed portfolio. In addition, I believe that UnitedHealth Group Inc. (NYSE:UNH) will join these three companies in the dividend achievers index and, as such, that it deserves consideration for a spot in your portfolio.
Greg Williamson owns shares of Stryker Corporation (NYSE:SYK), UnitedHealth Group, and Medtronic. The Motley Fool recommends AFLAC Incorporated (NYSE:AFL) and UnitedHealth Group Inc. (NYSE:UNH). The Motley Fool owns shares of Medtronic, Inc. (NYSE:MDT).
The article Dividend Achievers for the Long Haul, Part 2 originally appeared on Fool.com.
Greg is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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