May 26, 2010 / 1:21 PM / 9 years ago

UPDATE 2-Insurer UnitedHealth boosts dividend sharply

* Quarterly dividend set at 12.5 cents/share

* Previously was annual dividend of 3-cents/share

* Increase seen as positive signal about outlook

* UnitedHealth shares rise 2 pct (Revises top of story, adds analyst comments, company comments, updates stock price)

By Lewis Krauskopf

NEW YORK, May 26 (Reuters) - UnitedHealth Group Inc (UNH.N) is sharply increasing its dividend and plans to make payouts more frequently after calls by some investors for the U.S. health insurer to give more cash back to shareholders.

The dividend increase sends a positive signal about UnitedHealth’s outlook to investors, analysts said, in the wake of the passage of U.S. healthcare reform law that will impose new regulations and fees on the industry.

Shares of UnitedHealth were up about 2 percent, generally in line with a rise for other health insurer stocks. The largest U.S. health insurer by market value had told Wall Street its board was weighing a bigger dividend, and some analysts said the move was expected.

The company’s board approved a quarterly dividend of 12.5 cents per share to be paid on June 21 to shareholders of record as of June 7, UnitedHealth said on Wednesday. Most recently, the largest U.S. health insurer by market value paid a 3-cent per share annual dividend in April.

At the new rate, a full year of dividends would represent about 12 to 13 percent of 2010 expected cash flows from operations of $4.4 billion to $4.8 billion, the company said.

UnitedHealth had previously indicated to investors it was eyeing a dividend at the level of the S&P 500 average, Edward Jones analyst Steve Shubitz said, noting the new company dividend was a 1.7 percent yield versus a 1.9 percent yield for the S&P 500.

The increase “certainly is a positive signal,” Shubitz said, but “they have the potential to do an even greater dividend, and certainly if they were to do that, that would provide even more support for the stock price.”

He noted that UnitedHealth is spending $2 billion to $2.5 billion on share repurchases this year, far more than the cost of the dividend payout.

The “material” dividend also will expand UnitedHealth’s investor base to funds that are bound to invest in dividend-paying companies, Sanford Bernstein analyst Ana Gupte said in a research note.

“While it does not change the intrinsic value of the stock, we believe this is a positive signal to investors in regards to the management and board’s confidence on the sustainability of earnings and cash flow in the post-reform era,” Gupte said.

Even with the dividend, the company expects to “continue to have the financial flexibility and strength that we’ve had,” company spokesman Don Nathan said.

“We will continue to look for opportunities to invest in the growth of the business, both organic and other opportunities,” Nathan said.

UnitedHealth shares were up 55 cents or 1.9 percent at $29.42 on the New York Stock Exchange on Wednesday afternoon. (Reporting by Lewis Krauskopf, editing by Gerald E. McCormick and Matthew Lewis)

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