We recently compiled a list of the 12 Best Dividend Stocks For Steady Growth. In this article, we are going to take a look at where UnitedHealth Group Incorporated (NYSE:UNH) stands against the other dividend stocks.
It’s well understood how crucial dividend growth stocks are for investors. Although dividend stocks have been moving at a slow pace recently, largely due to the AI stock boom, their long-term value remains undeniable. Investors appear to be increasingly drawn to dividend growth strategies, recognizing that the focus should now be on growth rather than just yield. The Dividend Aristocrat Index stands out as a strong investment opportunity, offering an average yield of about 2.4%, trading at roughly 23 times earnings, and projected to achieve an average annual earnings growth of 7% over the coming years.
Also read: 10 Best Dividend Aristocrats According to Wall Street Analysts
During the second quarter, US equity markets saw gains, driven by ongoing excitement around artificial intelligence technology, which led to a notable rise in growth stocks. Analysts believe that dividend-paying equities, supported by strong fundamentals, sustainable growth prospects, and solid balance sheets, are well-positioned to benefit from continued economic growth. The current market environment has somehow blurred the line between tech and dividend stocks, especially as major tech companies have introduced dividend policies this year. Whether these companies can continue to raise their payouts remains to be seen. However, the outlook for dividend growth appears promising. In the first quarter, US companies increased their cash reserves to a record $4.11 trillion, aided by a resilient economy and relatively high interest rates, which has accelerated the dividend growth process. According to S&P Dow Jones Indices, over 175 companies in the S&P 500 announced a dividend increase or initiated a dividend during the first half of 2024.
Another factor boosting the significance of dividend growth stocks is the upcoming Federal Reserve interest rate decision in September. Paul Baiocchi from SS&C ALPS Advisors considers this a prudent strategy, as he expects that the Fed will begin easing rates. The chief ETF strategist made the following comments while speaking at CNBC’s “ETF Edge”:
“Investors are moving back toward dividends out of money markets, out of fixed income, but also importantly toward leveraged companies that might be rewarded by a declining interest rate environment.”
He further said:
“You’re looking for dividends as part of the methodology, but you’re looking at dividends that are durable, dividends that have been growing, that are well supported by fundamentals.”
Various reports have indicated that while dividend growth companies may not deliver immediate rewards, they offer substantial long-term benefits. Nuveen, a financial planning firm based in Illinois, provided an optimistic outlook on dividend growth strategies this year, emphasizing their historical performance. The report suggested that companies focused on dividend growth possess valuable long-term characteristics and are well-positioned for strong relative performance in the year ahead. Over time, companies that consistently increase or initiate dividends have achieved higher annualized returns with lower volatility compared to other equity market segments. Although dividend growth companies may not outperform in every market environment, their robust risk-adjusted returns over extended periods make them an ideal foundation for any equity portfolio. With that, we will take a look at some of the best dividend stocks for steady dividend growth.
Our Methodology:
For this list, we screened for dividend stocks with a 5-year average dividend growth rate of above 10%. From that list, we picked stocks with dividend growth track record of at least 10 years. The stocks are ranked in ascending order of their annual average dividend growth in the past five years.
We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 912 funds as of Q2 2024. 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).
A senior healthcare professional giving advice to a patient in a clinic.
UnitedHealth Group Incorporated (NYSE:UNH)
5-Year Average Dividend Growth: 15.41%
Consecutive Years of Dividend Growth: 15
UnitedHealth Group Incorporated (NYSE:UNH) is an American multinational health insurance and services company. On August 7, the company declared a quarterly dividend of $2.10 per share, having raised it by 11.7% in June this year. This marked the company’s 15th consecutive year of dividend growth, which makes UNH one of the best dividend stocks for steady growth. Its five-year average annual dividend growth rate comes in at 15.4%. The stock’s dividend yield on August 23 came in at 1.44%.
Over the past decade, UnitedHealth Group Incorporated (NYSE:UNH) has proven to be a remarkable investment, delivering nearly 600% returns and consistently outperforming the market, offering investors impressive gains. This performance highlights that investing in a leading healthcare company can be a reliable strategy for generating robust, consistent returns, especially as spending in the sector is expected to continue increasing in the future. UnitedHealth Group Incorporated (NYSE:UNH) effectively draws investors by implementing its expansion strategies. In recent years, it has broadened its reach into related areas, such as home healthcare and analytics, to diversify its operations further. These efforts aim to deliver greater value to its partners and patients.
Andvari Associates highlighted the strengths of UnitedHealth Group Incorporated (NYSE:UNH) in its Q2 2024 investor letter. Here is what the firm wrote:
“UnitedHealth Group Incorporated (NYSE:UNH) is one of the largest providers and distributors of services in the $5 trillion U.S. healthcare market. The company provides services to employers, individuals, and those eligible for Medicare and Medicaid. United’s Optum segment provides pharmacy benefit services and a slate of other insights and services to the major players in the healthcare space: physicians, hospitals, government agencies, and life science companies.
This is a company that provides essential services and has a strong wind at its back. Over two million people are enrolling in Medicare and Medicare Advantage every year. With the increase of healthcare spending every year, the value of the services and insights provided by Optum will only increase. United is a solid business with a high teens returns on its capital. After reinvesting in its businesses, United will likely return $16 billion in 2024 in the form of dividends and share repurchases off a revenue base of ~$380 billion.”
These initiatives have significantly fueled UnitedHealth Group Incorporated’s (NYSE:UNH) growth over time. Since 2011, UnitedHealth’s revenue has more than tripled, rising from just over $101 billion to nearly $372 billion by 2023. In the second quarter of 2024, the company reported revenue of $98.8 billion, up 6.41% from the same period last year. Its operating cash flow amounted to $6.7 billion, representing 1.5 times the net income.
The number of hedge funds tracked by Insider Monkey owning stakes in UnitedHealth Group Incorporated (NYSE:UNH) grew to 114 at the end of Q2 2024, from 104 in the previous quarter. These stakes have a total value of over $12.5 billion.
Overall UNH ranks 7th on our list of the best dividend stocks for steady growth. While we acknowledge the potential of UNH as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than UNH but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.