As dividend growth investors, we are often tempted to ignore low-yielding companies such as United Healthcare (UNH). However, both stock price and distribution rose more than 250% over the past five years. This is the kind of growth you can’t afford to ignore.

Let’s see if there is some upside potential from this supercharged dividend growth stock.

Understanding the Business

As the name says, United Healthcare is a healthcare company and operates via two different platforms. United Healthcare (about 65% of UNH revenue) is a health benefits business. It offers the full spectrum of health benefit programs for individuals, employers, military service members, retirees and their families, as well as Medicare and Medicaid beneficiaries.

The second platform, Optum (35% or UNH revenue), is a health services business serving the healthcare marketplace that includes payers, care providers, employers, governments, life sciences companies and consumers. This platform is divided into three segments:

  • OptumHealth: Population health management and healthcare delivery
  • OptumInsight: Health information, technology, services and consulting
  • OptumRx: Pharmacy benefits manager
  • Both platforms are complementary, as stated in UNH’s 2016 annual report: “United Healthcare utilizes Optum’s capabilities to help coordinate patient care, improve affordability, analyze cost trends, manage pharmacy benefits, work with care providers more effectively and create a simpler consumer experience.”

    As populations age, OptumRx will become a major growth vectors for UNH as more people will use such services. However, this is a double-edged sword as the health benefits division will face additional claims and will have to support its clients longer (as life expectancy is also on the rise).

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