Flush with cash, UnitedHealth Group Inc. said Wednesday it will launch a new share buyback program and reward shareholders with a 30 percent hike in their quarterly dividends.
The board of the Minnetonka-based company, the nation's largest insurer, agreed to a dividend of 21.25 cents per share to be paid June 22, up from the previous dividend of 16.25 cents per share.
The company said in a statement that the moves were driven by solid growth across all of its businesses, which include health insurance division UnitedHeathcare as well as the fast-growing Eden Prairie-based health services division Optum.
"It's no surprise that UnitedHealth has a tremendous amount of cash flow and that it has to do something with it over time," said Matthew Coffina, an analyst with Morningstar. "And aquisitions for the most part will be fairly small compared to cash they're generating."
UnitedHealth's board also authorized the purchase of 110 million outstanding shares of stock, replacing a prior share buyback program of the same size in which about 33 million shares remained.
While cash dividends can draw investors to the company, stock buybacks can be a tactic to raise the share price by reducing the number of shares on the market.
Even as new rules in the federal health care law limit profits insurers can make from premiums, the move is sure to please investors while riling critics who see insurers as extracting profits at the expense of people who are sick.
"These companies have to tread very carefully when it comes to anything like executive compensation or share repurchases," Coffina acknowledged. "That said, maybe some politicians will make some noise, but there's not anything they can do about it."
UnitedHealth began paying annual dividends in 1990 and moved to a quarterly dividend in June 2010, setting the bar for more generous shareholder dividend payouts that forced competitors WellPoint, Humana and Aetna to take a similar approach.
UnitedHealth's original payout ratio was low, setting aside just 10 percent of earnings, but that percentage is growing.
The company crossed the $100 billion revenue threshold for the first time last year, with enrollment growing 3 percent and patients using less medical care for a variety of reasons -- high-deductible plans, the financial pinch of the recession and more effective managed care and prevention programs. Net income reached $5.1 billion.
While Optum is a strategically important part of the corporation's business -- its suite of businesses deal with health information technology, wellness plans and pharmacy benefit management -- Optum's growth requires more expensive investments in IT.
"The insurance business is really the cash cow that is funding growth in Optum and all these repurchases," Coffina said.
Shares of UnitedHealth have climbed nearly 11 percent this year, and finished the day up nearly 3 percent at $57.70.
Jackie Crosby 612-673-7335