A friend asked for my Top 5 selections. I posted them a couple of posts back… and, when I did so, I inadvertently left Ross Stores, ROST, out by accident, and wrote up that one in my last post.
Today, I want to bring my second of my Top 5, now 6, ideas… and that would be United Health Group, symbol UNH.
I always start with my ‘bogey’, target, or goal first. Which, by any measure, is almost always the S&P 500 Stock Market Index. I look to 3 things; the analysts’ consensus of forward-looking earnings estimates for the past 10 years. It was $3.16 a share then, and is at $4.49 today, for a 42% gain in 10 years. EPS did plunge to $1.21 a share by 3/23/09, or a decline of near 62%, before rising 271% to the present $4.49. Dividend payout history begins 10 years back at an average of $.73 a share to the present $1.39 a share; a 90.4% increase. It did drop from a high of $.80 a share in August of ’08 to a low of $.62 a share in Feb. of ’10. That was a 22.5% “pay cut” from which it rose 124% to its present payout. The average share price 10 years ago was $50.67, but closed Friday at $95.15 for an appreciation of 87.8%. That’s the ‘bogey’. We want to beat it.
With United Health Group, we have a 10-year history that looks like this: The analysts’ EPS estimate line begins at $3.57 a share, and is presently at $9.25 a share. This would translate into 159% growth, as compared to the 500’s 42%. There is a GFC dip from a high of $4.08 in March of ’08, that fell to as low as $2.56, or by 37%, in March of ’09, but it has recovered remarkably well from there. The dividend payout history begins at just $.03 a share, but began to climb in July of 2010, each year, to where it is currently at $2.50 a share. No need to remark on what kind of growth that has been. Astronomical might work here, as compared to the 500’s 90% increase! I expect a double-digit dividend payout on those shares I currently hold in 10 years time. The current payout ratio is 38% of earnings, so it is immanently safe. Share price 10 years ago was $53.03, and closed today at $163.06, for an appreciation of 207%, or a little better than a triple. This compares very favorably to the 500’s 88% gain.
A reader wondered about “UNH’s competitive advantage,” and I only know of 10 such corporations in my database, of which 9 might be in competition with United, but it is more than 3 times larger than its nearest competitor in Aetna. Beyond that, it may not have an advantage, but it is certainly one of the very top companies by those measures my analytical program ranks them by.
My point would simply be that the administration of health care benefits and insurance is never going to go away, and as an underwriter of health insurance, and involved with health care management, especially as all of us Boomers age, I can’t imagine how UNH can’t continue to profit, grow, pay a dividend, and grow that dividend at a healthy rate for shareholders like myself.
If you have any other opinions or observations, please share!
Here’s to your successful investing!
Harold F Crowell