The following graphs were taken from the Administration On Aging, and provide clear evidence of the enormous opportunity that an aging population provides this subsector, assuming that the government doesn’t take away their ability to earn a profit.
However, the reader should also be aware of the complex nature of the Health Care Reform Act. The entire transcript can be found here for anyone willing to endure the voluminous nature of this act, courtesy of the Kaiser Health News.
UnitedHealth Group Recent, Past & Future
In light of what I’ve shown above, the resetting of UnitedHealth Group Inc. (NYSE:UNH) can be seen by first reviewing the company’s Earnings and Price Correlated history since 2008. Earnings growth has been quite strong at 13% per annum, and the company’s stock price has been steadily reacting in a positive way as the uncertainties of health care reform have dissipated. Additionally, we see that the company’s dividend payout ratio has increased, as expressed by the pink line (dividends as a percentage of earnings) and the light blue shaded area after those dividends have been paid out.
Shareholders with the courage and/or foresight to invest in UnitedHealth Group Inc. (NYSE:UNH) since 12/31/2008 were richly rewarded. A $10,000 investment on 12/31/2008 would have grown to $27,266.93 representing an annualized rate of return without dividends of 24.6%, far surpassing the S&P 500. Additionally, the dividend was raised from $.03 a share in 2009 to $.41 in 2010, and has continued to advance ever since.
The consensus of 25 analysts reporting to Standard & Poor’s Capital IQ estimate 5-year forward earnings growth at 10%. Consequently, UnitedHealth Group Inc. (NYSE:UNH), and I might add, most of its peers, appear to be attractive long-term investments at today’s valuations.
Since this article is earmarked to the dividend growth investor looking for quality fairly valued dividend growth stocks to add to their retirement portfolios, the following additional fundamentals support their inclusion.
UnitedHealth Group Inc. (NYSE:UNH) is supporting shareholders and its future growth through an aggressive share buyback program. Common shares outstanding have decreased from 1.25 billion shares in 2007 to 1.02 billion shares by fiscal year-end 2012.
Additionally, UnitedHealth Group’s free cash flow per share has steadily increased since the Great Recession from $2.84 in 2008 to $5.17 per share by fiscal year-end 2012. This expression of free cash flow is after the company has paid a dividend, which indicates that the dividend is well-protected.
Summary & Conclusion
The Health Care sector appears to offer several high-quality dividend growth stock opportunities at today’s valuation. The tailwinds of the powerful demographic opportunities provided by an aging population are now supported by the headwind of uncertainty from health care reform that perhaps is now turning into a tailwind in its own right. As the old saying goes, “in every adversity lies the seed of a greater or equivalent benefit.” Of all the sectors thus far reviewed, I believe that the Health Care sector provides some of the best opportunities I have thus far seen.
My next article will cover the 40-Financial Sector.
Disclosure: Long PFE, ABC, AZN, NVS, SNY, SYK, MDT, UNH at the time of writing.
Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.
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