Health insurer UnitedHealth Group (NYSE:UNH) just reported third-quarter earnings results that handily beat analyst expectations on the top and bottom lines, but its outlook for the rest of the year and for 2025 disappointed investors who sent UNH stock careening 8% lower.

While that sets shares of the insurer back to where they were in July and they remain 8.5% above where they started 2024, is now the time for investors to back up the truck and load up on the stock? It pays a healthy dividend that yields a restable 1.4% annually, so let’s dig in and find out!

24/7 Wall St. Insights:

• UnitedHealth Group (UNH) posted solid earnings results again for the third quarter, but its guidance for the rest of the year and next year was softer than the market expected, sending the stock lower.
• The health insurer has run into ongoing reimbursement headwinds from government-sponsored programs such as Medicare Advantage, sapping its near-term earnings growth.
• Sit back and let dividends do the heavy lifting for a simple, steady path to serious wealth creation over time. Grab a free copy of “2 Legendary High-Yield Dividend Stocks“ now.

The rearview mirror is better than what’s out the windshield

UnitedHealth Group had been growing smartly in 2024. Particularly after its second-quarter earnings report where it also beat Wall Street’s forecasts, the stock surged as management reiterated its guidance for the full year.

The latest financials also show the trend that had been in place then continued into the third quarter allowing the insurer to post solid results. 

Revenue jumped 9% to $100.8 billion, beating analyst estimates by $1.5 billion, a sizable gain on what was expected. Similarly, earnings of $7.15 per share also easily eclipsed what Wall Street anticipated by $0.12 per share as higher profits in its Optum Health caregiving services and Optum Rx pharmacy benefit management (PBM) services showed robust growth. The Health unit’s profits surged 38% while the PBM business jumped 23% from the year-ago period.

Those gains were enough to offset an 8% drop in operating profits in UNH’s medical insurance and a 6% fall off at Optum Insight, UnitedHealth’s data, analytics, research, consulting, and managed services solutions division. Insurance was hurt by surging medical utilization at the same time there was a disproportionate mismatch in reimbursement rates in key government programs like Medicare Advantage and Medicaid eligibility redeterminations.

The company’s results were also hurt by a previously reported cyberattack at Change Health that had it loaning $8.9 billion to care providers in its wake. There were ultimately $475 million in impacts to the company in the quarter.

Changing government rules disrupt the growth trajectory

While the Medicaid issues seem to be largely in the rearview mirror, the Medicare Advantage program is an ongoing problem. It is one of the reasons industry peer Cigna (NYSE:CI) opted to sell its MA business to privately owned Health Care Service for $3.7 billion.

That, in part, led management to narrow its guidance for full-year 2024 adjusted earnings to a range of $27.50 to $27.75 per share from its previous forecast of $27.50 to $28.00 per share. Its initial outlook for the coming year was also weaker than expected with earnings only growing to $30 per share. That suggests mid- to high-single-digit growth versus its long-term estimates of mid-teens growth.

Management maintains its business is strong and growing, but with several important programs providing significant headwinds, growth will slow over the near term.

A solid dividend growth stock

Although profits are going through a period of readjustment to the uncertainty regarding its government relationships, the overall health of UnitedHealth remains strong, especially with its dividend.

Despite UNH’s yield being rather low, if you look at how fast the insurer has been raising its payout it offers a much different — and better — perspective. Over the past five years, UnitedHealth has increased its dividend at a 15% compound annual growth rate (CAGR) while its has grown at a near-20% CAGR for the past decade. Its payout ratio of just 30% — or the amount of earnings it pays out as dividends — shows the dividend is not only secure, but also has plenty of room for future robust growth.

The dividend has grown from $1.05 per share back in 2013 to $8.40 per share today. UNH has been able to do that because it has grown free cash flow at 13% and 15% annually over the last five- and 10-year periods, respectively.

Key takeaway

UnitedHealth Group remains a solid dividend growth stock to own. While its business may experience some softness over the next 12 months or so, the longer term outlook remains quite bright. 

This is a stock that should be part of an income investor’s portfolio, one that offers substantial capital appreciation and income-generating potential.

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