After a grueling year, investors are desperate for high-quality stocks that can push their portfolios toward a robust recovery. Besides, the stock market is still expected to suffer from volatility because of skyrocketing interest rates and concerns over a possible recession.
This is why it’s critical to look for stocks with long-term potential regardless of the short-term uncertainties.
One of the stocks that fall under this category is UnitedHealth Group (UNH).
United is the second biggest health insurance plan provider in the United States. It handles over 45 million individuals domestically and more than 5 million customers across the globe. On top of these, United has over 100 million clients via its Optum Health subsidiary.
United shares have catapulted by 115% over the past 5 years and 748% in the last decade. This shows the company’s stability and solid leadership. After all, these incredible gains didn’t occur by accident.
The company has reported positive year-over-year growth in its bottom line in 19 out of 20 years, with the Great Recession in 2008 being the only exception.
The company provides an extensive range of services, including medical and commercial insurance, prescription, Medicare Part D plans, Medicare Advantage, Medicaid, and Medicare Supplement. Its sheer size and diverse portfolio easily set United apart from its counterparts in the sector. More importantly, the company is consistent in its performance and frequently surpasses its rivals in terms of profitability.
It also boasts of higher margins that consequently lead to better efficiency ratios like return on equity and return on assets. This indicates United’s superior way of handling its financial resources to ensure it delivers good returns for its shareholders.
These factors all result in a notably solid company that delivers stable cash flows throughout the different economic cycles. Admittedly, though, United will never become a transformative stock. Instead, it should be regarded as one of the most reliable dividend stocks in anyone’s portfolio.
Over the last 10 years, United’s shareholder distributions have regularly grown, with the stock offering a 1.3% dividend yield. While this is notably lower than the S&P 500’s current average yield at 1.7%, the company has been aggressive in boosting its payouts every quarter.
For context, its $1.65 per share payment in the current quarter is almost eight times the $0.2125 it paid its shareholders 10 years ago.
Remarkably, the company only took 7 years to triple its payout in 2015, which was at $0.50 per share.
All in all, these average out to a compound annual growth rate of 18.6%.
That’s an impressive rate of growth, and this performance could very well be sustained thanks to United’s strong earnings.
With the business showing no signs of slowing down anytime soon and the continuous expansion of its Medicare segment, United’s bottom line is projected to climb between 13% and 16% every year over the long term.
Currently, United trades at 23 times earnings, making it reasonably priced albeit a bit more costly than the S&P 500’s average of 20. Still, this type of growth and such a solid dividend make the healthcare stock worth a premium.
To date, United has a payout ratio of 29%, demonstrating that the company is capable of producing more than enough earnings to sustain and boost its dividends.
It also has a forward P/E ratio under 20, indicating that investors can buy United shares sans the risk brought by too much volatility. Hence, this is an excellent stock for income investors and retirees. I suggest you put it on your current watchlist and be ready to buy the dip.
