We recently compiled a list of the 16 Best Income Stocks To Buy According to Analysts. In this article, we are going to take a look at where UnitedHealth Group Incorporated (NYSE:UNH) stands against the other income stocks.

When it comes to income investing, dividend stocks are often the first choice for investors. These stocks offer regular payouts to shareholders, which are seen as a way to steadily increase income over time. This approach is backed by data. A report from Hartford Funds revealed that dividends have accounted for 39% of total returns on average since the 1940s. The report also highlighted that stocks with high dividend payouts have not only outperformed other dividend-paying stocks but have done so with lower volatility.

Income factor plays a crucial role in investing, as it can significantly boost overall returns, helping investors achieve the portfolio growth needed to meet their financial objectives. A study by Eagle Investment Management highlighted the income potential of dividend-paying stocks. The study compared the returns of a hypothetical $1,000,000 investment made on December 31, 2012, in the Dividend Aristocrats Index—composed of companies that have consistently raised their dividends for 25 years—with the broader market, assuming dividends were reinvested. According to the report, by 2022, the $1,000,000 investment in Dividend Aristocrats would have generated $93,212 in income, compared to just $55,726 from the market. This stark difference emphasized the greater income potential of dividend aristocrats over the broader market. Although this is a historical example, it underscores the importance of not only prioritizing dividends but also focusing on their growth to enhance a portfolio’s income stream over time.

Also read: 12 Best REIT Dividend Stocks To Buy for 2024

Dividend investing is not a quick path to success; it requires patience and a long-term approach. Over time, high-yielding dividend stocks tend to outperform those that don’t pay dividends. According to the French Data Library, while non-dividend-payers may lead the market in certain years, they generally fall short in the long run. Dividend-payers, especially those with higher yields, have consistently outperformed non-payers and even the broader market. The report, which examined returns from 1927 to 2023, found that non-dividend-payers delivered an annualized return of 8.7%, while high-yield stocks returned 10.9%. In comparison, the overall market returned 9.7% during the same period.

The report outlined several reasons why dividend-paying stocks tend to outperform others. According to the report, investing in dividend-payers helps filter out the most speculative stocks, as these companies are usually well-established and confident in their cash flow, allowing them to return cash to shareholders. Moreover, dividend-payers are more commonly found in the value segment of the market, and stocks with lower prices and expectations have historically performed well. Dividend payers often build a loyal shareholder base, as investors relying on income from their holdings are less likely to sell due to negative news. Lastly, committing to paying dividends fosters discipline within companies. Executives, tempted by the prospect of using excess cash for acquisitions or speculative projects, are instead compelled to act cautiously and prioritize maintaining dividend payouts. For this reason, investors tend to focus on companies with a proven history of strong dividend growth and high yields. In this article, we will further take a look at some of the best income stocks to buy according to analysts.

Our Methodology:

To compile this article, we screened for stocks known for their consistent dividend track records and sustained shareholder payouts over an extended period. This group reflects stability and long-term performance in dividend payouts. From this list, we further refined our selection criteria by identifying stocks with a projected upside potential of over 10% based on analyst price targets. The stocks are ranked according to their upside potential, as of December 13. We also considered hedge fund sentiment around each stock in Insider Monkey’s database, as of the third quarter of 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).

UnitedHealth Group Incorporated (NYSE:UNH)

Upside Potential as of December 13: 21.4%

UnitedHealth Group Incorporated (NYSE:UNH) ranks fifth on our list of the best dividend stocks. According to analysts, the American multinational healthcare and insurance stock has an upside potential of 21.4%. This analyst’s response might catch investors off guard, given the company’s recent difficulties following the tragic murder of its CEO, Brian Thompson. The long-term implications of this event for the health insurance sector remain unclear. For now, the situation has drawn considerable national attention, with many investors seemingly surprised by the intensity of the public backlash against the company. The stock has fallen by over 2.3% since the start of 2024.

That said, UnitedHealth Group Incorporated (NYSE:UNH) generated strong earnings in the third quarter of 2024. The revenue of $100.8 billion grew by 9.16% from the same period last year. The company’s commercial domestic offerings have seen significant growth, adding 2.4 million consumers so far this year. Its projected net earnings for the full year 2024, estimated at $15.50 to $15.75 per share, take into account the divestiture of its South American operations during the first half of the year, as well as the impacts 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) has raised its payouts for 15 years in a row. The company currently pays a quarterly dividend of $2.10 per share and has a dividend yield of 1.59%, as of December 13.

As per Insider Monkey’s database of Q3 2024, 112 funds held stakes in UnitedHealth Group Incorporated (NYSE:UNH), down from 114 in the previous quarter. These stakes are worth more than $15 billion in total.

Overall UNH ranks 5th on our list of the best income stocks to buy according to analysts. 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. 

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.

Disclosure: None. This article is originally published at Insider Monkey.