Latest / Dividend Investing with Fexingo: Income Stocks, Yield, and Long-Term Cash Flow Portfolios / Why UnitedHealth Dividends Signal Resilient Payouts
Transcript
- Lucas: So UnitedHealth Group reported earnings this morning, and while the headline numbers were solid, what caught my eye wasn't earnings per share or revenue—it was the dividend. Luna: The dividend? I mean, UnitedHealth yields around 1.5 percent—that's not exactly a headline grabber. Lucas: Right, the yield is modest. But here's the thing: UnitedHealth has raised its dividend for 15 consecutive years. That's not quite 'dividend aristocrat' status—you need 25 years for that—but the growth rate has averaged about 15 percent annually over the past decade. Luna: So you're saying the payout growth matters more than the current yield? Lucas: Exactly. And if today's conversation is helping you think about dividends differently, the way this show stays ad-free is listener support. You can head to buy me a coffee dot com slash fexingo to chip in. Luna: Yeah, it's a small way to keep these conversations going without any commercial breaks. Lucas: Back to UnitedHealth. The company's payout ratio is around 35 percent, which is conservative for a healthcare firm. That gives them plenty of room to keep raising even if earnings dip. Luna: And that's in stark contrast to, say, a utility or a REIT, where payout ratios can be 80 or 90 percent. Lucas: Precisely. Now, in the current environment—the 10-year Treasury is at 4.55 percent, down a bit from last week—investors are questioning whether dividend stocks still make sense. But UnitedHealth's dividend growth has actually outpaced the rise in bond yields. Luna: So the argument is that a stock like UnitedHealth can be a bond substitute if you're looking for income that grows? Lucas: Yes, but with a catch. Bonds give you predictable nominal income. UnitedHealth gives you income that historically doubles about every five years. Over a decade, that 1.5 percent yield today could be a 3 percent yield on your original cost basis. Luna: But you have to stomach the volatility. The stock dropped 2.7 percent in the past five days, even with earnings. Lucas: That's true. And that's why I think UnitedHealth is a better fit for a growth-oriented dividend portfolio rather than a pure income portfolio. If you need cash flow today, you'd look at something like Altria, which yields north of 8 percent. But Altria's payout ratio is over 80 percent, and its dividend growth is anemic. Luna: So it's a trade-off: high current yield versus high future growth. Lucas: Exactly. And UnitedHealth's business model supports that growth. They're a healthcare services company, not just an insurer. Their Optum segment—pharmacy benefit management, data analytics, clinics—accounts for a growing share of profits. That diversification helps stabilize cash flow. Luna: And demographics are on their side. An aging population means more healthcare spending, which should support earnings for years. Lucas: Right. So when I look at the dividend landscape today—with the S&P 500 down half a percent over the past week, and the yield curve still steepening—I think UnitedHealth is a name that often gets overlooked by dividend investors because the yield is low. But the total return story is compelling. Luna: Let's talk about that total return. If you bought UnitedHealth five years ago, what would your dividend yield on cost be today? Lucas: Great question. Five years ago, the dividend was about $3.60 per share annually. Today, it's $7.52—more than double. So if you bought at the average price five years ago, your yield on cost would be around 2.8 percent. Not huge, but it's growing. Luna: And that's without factoring in share price appreciation. UnitedHealth is up about 80 percent over that period. Lucas: Right. So the total return is driven by both. Contrast that with a bond yielding 4.55 percent—you get the coupon, but no growth, and no inflation protection. Luna: Unless you buy TIPS, but that's a different conversation. Lucas: Exactly. So for long-term investors, dividend growth stocks like UnitedHealth can be a powerful way to generate rising income. The key is to look at the payout ratio and the business model, not just the yield. Luna: And to be patient. The real magic happens after a decade or more of compounding. Lucas: That's the whole point. One more thing—UnitedHealth's dividend increase this year was 14 percent. That's well above the rate of inflation. In a world where the Fed is still keeping rates at 3.63 percent, that kind of real income growth is hard to find. Luna: So you're saying that even if rates stay higher for longer, a stock like UnitedHealth can still deliver. Lucas: I think so. But you have to believe that healthcare spending will keep growing, and that UnitedHealth will continue to execute. There are risks—regulatory changes, competition, medical cost trends—but the dividend track record suggests management is committed to returning capital to shareholders. Luna: And they have the balance sheet to do it. UnitedHealth has an AA- credit rating, which is rare for a healthcare company. Lucas: That's right. So if you're building a dividend portfolio, consider including a few stocks with lower yields but higher growth potential. UnitedHealth is a prime example. It may not be the flashiest name, but it could be a steady compounding machine. Luna: Alright, Lucas. So what's the one takeaway for our listeners today? Lucas: Don't let a low current yield fool you. Look at the dividend growth rate, the payout ratio, and the underlying business. A stock like UnitedHealth might not give you the biggest check today, but it could write you a much bigger one down the road. Luna: Good advice. And as always, thanks for listening. We'll be back with another dividend deep dive soon.