UnitedHealth Group's (NYSE:UNH) Shareholders Will Receive A Bigger Dividend Than Last Year

UnitedHealth Group Incorporated's (NYSE:UNH) periodic dividend will be increasing on the 25th of June to $2.10, with investors receiving 12% more than last year's $1.88. The payment will take the dividend yield to 1.5%, which is in line with the average for the industry.

See our latest analysis for UnitedHealth Group

UnitedHealth Group's Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. The last dividend was quite easily covered by UnitedHealth Group's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Looking forward, earnings per share is forecast to rise by 108.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 26%, which is in the range that makes us comfortable with the sustainability of the dividend.

UnitedHealth Group Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2014, the annual payment back then was $1.12, compared to the most recent full-year payment of $7.52. This means that it has been growing its distributions at 21% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. Earnings have grown at around 4.9% a year for the past five years, which isn't massive but still better than seeing them shrink. Growth of 4.9% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This could mean the dividend doesn't have the growth potential we look for going into the future.

We Really Like UnitedHealth Group's Dividend

Overall, a dividend increase is always good, and we think that UnitedHealth Group is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for UnitedHealth Group you should be aware of, and 1 of them is potentially serious. Is UnitedHealth Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.