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Dividend growth investing
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Summary

  • Dividends have grown significantly in recent years.
  • Future economic and political changes may affect dividends going forward.
  • Given the uncertainties, I will not be making any immediate changes to my holdings.

Some Personal Background

I have been spending 2014 working on gradually adjusting my portfolio so that I have a clearer understanding of why I am holding the companies I am holding, while also working to increase the proportion of companies which pay and regularly grow dividends.

In the process, I have been selling positions in companies that do not pay dividends, increasing my holdings in companies that pay and grow dividends, and initiating positions in companies that are dividend growers.

In this article, I discussed my decision to sell my first stock this year. Recently, it was time for me to make a decision about UnitedHealth Group, which has a limited history of dividend growth.

Dividends Have Increased Significantly in Recent Years

UnitedHealth Group (NYSE:UNH) provides health care products and services to employers as well as to individuals in the United States.

UNH began paying dividends annually in 1990, but increases came only every few years for most of the next 20 years. Beginning in 2010, the dividend started a pattern of annual dividend increases as well as a change to quarterly dividend payments. Increases have been significant: In 2011, 2012, and 2013, the dividend increases were at least 30%. The decision about whether or not there will be an increase in the dividend in 2014 will most likely be announced in the next few weeks.

The current 1.5% dividend yield is not especially high. While the dividend has grown phenomenally, the share price has done the same. So the current yield is about where it was four years ago.

I purchased UNH in 2010 when the stock price was around $30. At the time, I did not make the purchase because of dividends. However, since dividend growth is one of my goals now, it appears that UNH might have turned into a dividend growth stock. Can future dividends be expected to rise?

Is it a Good Idea to Hold UnitedHealth Group Going Forward?

Given the changes in health insurance in recent years and given the possibility of additional changes going forward, there is a question as to whether UNH's dividend growth can be expected to continue into the future. Questions that I think are relevant to anyone thinking about the future of UNH's dividend include the following:

  • What happens if the Affordable Care Act does not result in a significant increase in the number of Americans with health insurance?
  • What happens if the implementation of the Affordable Care Act results in a significant number of insured Americans find that their health care choices are significantly more expensive?
  • What happens if the implementation of the Affordable Care Act is significantly changed by the results of the midterm elections of 2014?

Depending on what happens over the next year, health insurance companies could see changes to their business models. UnitedHealth Group's profits could go up or down over the next few years. If there are actual changes to UNH's profitability, then of course we might see significant changes to the company's dividend policy.

My Plans

There is no way to know what will happen in the future. Economic and political decisions could change the future prospects of UNH, but there is no way to predict what those changes may be. Therefore, I am making the decision at this time to hold my UNH shares, but I will be tracking developments throughout the remainder of this year to see if I will be holding it going forward.

In addition, I will watch for the upcoming announcement about a dividend increase. If we do not see an announcement about an increase in the next few weeks, it may be time to consider letting UNH go.

Disclosure: I am long UNH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Is It A Healthy Move To Hold On To UnitedHealth Group?