Dull, But Rewarding: This Stock Has Grown 22% Annually For 15 Years

Money

It may not be a thrilling stock, but its share price shows fantastic average annual growth and it pays a quarterly dividend of US$1.88 per share. Photo: sorbetto/Getty Images

Can I interest you in a company whose share price shows an average annual growth rate of 22 per cent over the past 15 years?

A company whose stock pays a quarterly dividend of US$1.88 per share?

A company that has increased its annual payout for more than 15 consecutive years?

A company with almost $33 billion in the bank, as of the end of March?

No, it’s not a tech stock. I’m referring to UnitedHealth Group (UNH-N), one of the world’s dullest and most rewarding companies.

If you pay close attention to U.S. stocks, you may already be familiar with it. UNH has been a recommendation of my Internet Wealth Builder newsletter since March 2014, when it was trading at $76.01 (figures in U.S. dollars). It’s now trading at just below $500.

UnitedHealth is the world’s largest health insurance provider by revenue. The stock has a market cap of about $450 billion. 

The financial numbers read more like those of a technology company than an insurer. In 2023, UNH reported revenues of $371.6 billion, up 14.6 per cent year-over-year. Earnings attributable to common shareholders were $22.4 billion ($23.86 per share). The company’s return on equity was an impressive 27 per cent.

The company’s origins go back to late 1974 with the founding of Minnesota-based Charter Med Incorporated by Richard Taylor Burke. The company originally processed claims for doctors at the local Hennepin County Medical Society. United HealthCare Corporation was founded in 1977 to purchase Charter Med and create a network-based health plan for seniors. It went public in 1984 and changed its name to UnitedHealth Group in 1998. 

UNH has grown organically and by acquisition over the years since. Some of the companies it purchased were Florida-based Ramsey-HMO (1994), The MetraHealth Companies Inc. (1995), LifeMark Health Plans (2001) and AmeriChoice (2002). Between 2000 and 2020, the company made at least one acquisition almost every year.

The company consists of two operating segments. UnitedHealthcare provides insurance coverage for employer plans and to individuals around the world. More than 50 million people are covered by its programs. 

Optum was formed in 2011. It’s the technical branch of the company, providing data and analytics, pharmacy care services, population health, healthcare delivery and healthcare operations.

Earlier this month, the company reported first quarter 2024 revenue of $99.8 billion, up over $8 billion year-over-year. But it booked a loss of $1.53 a share, due in large part to the impact of a hacker attack on subsidiary Change Healthcare. The company also recorded a $7 billion first-quarter loss on the sale of its Brazilian operations.

Adjusted earnings, which strip out one-time costs and profits, were $6.91 per share.

The company said total cyberattack impacts in the first quarter amounted to $0.74 per share and the company estimates full year 2024 impacts of $1.15 to $1.35 per share. In the first quarter, this included $0.49 per share to support direct response efforts such as the Change Healthcare clearinghouse platform restoration. The company estimates direct response costs of $0.85 to $0.95 per share for full year 2024 and another $0.30 to $0.40 per share for business disruption.

Looking ahead, the company updated its full year 2024 net earnings outlook to $17.60 to $18.20 per share to reflect the Brazil sale and the estimated direct response costs of the cyberattack. The company maintained its adjusted net earnings outlook of $27.50 to $28 per share.

The result of all this has been a pull back in the share price to $495.35 (April 26, 2024 close) from the all-time high of $554.70 reached in early December 2023. If you don’t already have a position, this is a good time to start building one, with the share price down over 10 per cent from its high.

Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca/subscribe

Gordon Pape

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