Why it’s time to buy this blue-chip dividend growth stock

BBy its very nature, dividend growth investing tends to help investors focus on world-class companies. Indeed, only companies with competitive advantages in growth industries are able to consistently pay out more revenue to shareholders over the long term.

the mega-cap health insurer UnitedHealth Group (NYSE:UNH) is a stock that has the potential to provide ever-increasing dividends to its shareholders. What makes it so? And why do I believe the stock is a buy right now? Let’s look at UnitedHealth Group’s fundamentals and valuation to find out.

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The leader in a growing industry

As medical costs continue to rise and chronic illnesses become more common, health insurance will become an even more important product for countless customers. This is precisely why market research firm Allied Market Research predicts that the global health insurance market will grow 9.7% annually, from $1.98 trillion in 2020 to $4.15 trillion. dollars by 2028.

As the world’s largest health insurer, no company will benefit more from this trend than UnitedHealth.

Recent results speak volumes

The health insurance industry’s encouraging growth prospects and the quality of UnitedHealth explain why the company has done so well in its latest results. For the fourth quarter, the company reported total revenue of $73.74 billion, representing a growth rate of 12.6% over the prior year. This managed to beat the consensus analyst forecast of $72.86 billion. So what drove the pace of revenue?

UnitedHealth’s insurance customer base grew 4.5% year-over-year to 50.6 million. Coupled with increases in health insurance premiums, this is how the company generated such robust sales growth in the fourth quarter. Growth in UnitedHealth’s customer base and insurance premiums drove revenue up 11.8% year-over-year to $287.6 billion in 2021.

Profitability was also strong. United Health non-GAAP (adjusted) the net margin jumped 210 basis points year over year to 5.8% in the fourth quarter. Along with a 0.6% reduction in the number of company shares outstanding and a higher revenue base, this enabled UnitedHealth non-GAAP earnings per share (EPS) soared 77.8% year-over-year to $4.48 in the fourth quarter. A stronger revenue base and disciplined cost management also allowed UnitedHealth’s non-GAAP EPS to increase 12.7% in 2021 to $19.02.

Due to positive, secular trends within the health insurance industry, analysts expect UnitedHealth’s non-GAAP EPS to grow at a healthy rate of 15% per year over the next five years.

An unparalleled track record

UnitedHealth is a fundamentally sound company based on its demonstrated past growth and future growth potential. But what sets it even more apart from its peers is its strong balance sheet.

The company’s $21.98 billion net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) of $27.02 billion in 2021 corresponds to a net debt/EBITDA ratio of 0.81. It’s much better than health insurers Anthem and humanewhich sport ratios of 1.61 and 1.35, respectively.

UnitedHealth’s leverage is much more manageable than that faced by other large-cap peers, which in turn reduces its overall risk.

Spectacular stock at a fair price

Shares of UnitedHealth have climbed 48% over the past year and are currently trading at $492 per share. But even with the strong stock performance, I would say UnitedHealth is still a buy. Why is that?

Well, the shares are trading at a P/E ratio of 22.7 for the current year. Although this is about 18% more than the S&P500‘s multiple of 19.2, I believe UnitedHealth deserves such a premium. This is due to the stock’s superior growth profile and strong balance sheet.

With a very conservative dividend payout ratio of 29.4% and projections for annual earnings growth in the mid-teens, the stock is likely to be a dividend growth machine for many years to come. Combined with a 1.2% dividend yield, this makes UnitedHealth an attractive buy for dividend growth investors.

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Kody Kester owns the UnitedHealth Group. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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