UnitedHealth Group and CatchMark Timber Trust Just Declared Double-Digit Dividend Hikes

Medical insurer UnitedHealth Group and specialty REIT CatchMark Timber Trust juice their distributions.

Jun 9, 2014 at 2:44PM

The past few days saw fewer dividend hikes than the previous week, but although the number was down, some of those raises were quite chunky. 

Exhibit "A" is the nation's largest medical insurer, UnitedHealth Group (NYSE:UNH). The big company lifted its quarterly payout by more than one-third from $0.28 per share to $0.375.

At first blush, this looks like lousy timing: UnitedHealth's Q1 was nothing spectacular, with revenue inching up by 5% on a year-over-year basis to $32 billion and bottom line slumping by 8% to $1.1 billion. As per its recent habit, the company blamed its woes largely on Obamacare.

This finger-pointing has been met with some skepticism in the market, and perhaps as a result the company's shares have notably lagged behind rival insurance titans Cigna and Aetna. But those two competitors can't touch UnitedHealth's 1.9% yield on its new payout: Aetna's currently stands at 1.1% while Cigna's $0.04 annual distribution is microscopic compared to its over $90 per share price.

Dividend hikes are habitual for UnitedHealth; the company has enacted them consistently since initiating quarterly dividends in 2010. This has its cost, of course: Over that time, its payout ratio has climbed steadily to the current level of 34%.

But I don't think shareholders should be worried. Over the past four quarters the company's cash position has held steady in the $7.2 billion to $8.2 billion range. The new dividend will cost it roughly $90 million extra every quarter, or $360 million annually. Despite the uninspiring Q1, this is a rich company that seems able to afford and sustain its fat dividend boost.

UnitedHealth's new distribution will be handed out on June 25 to shareholders of record as of June 16.

The story's a little different for specialist real-estate investment trust CatchMark Timber Trust (NYSE:CTT), which last week increased its quarterly payout by 14% to $0.125 per share. As the REIT's name implies, its area of expertise is timberlands, and it has been aggressively adding to its holdings of late. So far this year, the hungry company has made four separate deals for a total of $86 million that have landed it a total of 44,500 new acres of forest in Georgia and Texas.

Those buys were made possible by the REIT's expansion of a pair of credit facilities by a total of $75 million, which the company says "provides ready capital for CatchMark to pursue additional acquisitions ... and cash available for distribution." 

That's good, because CatchMark has posted net losses every quarter since going public last December, and it spilled plenty of red ink before then. It's also been cash-flow negative more often than not. Additionally, the company is heavily dependent on a single customer: packaging company MeadWestvaco (NYSE:WRK), from which it derived 35% of its net timber sales revenue in Q1. 

That said, the recent quarter's shortfall was much lower than that of its predecessors, and revenue during the period grew by 20% on a year-over-year basis. And its customer base is widening; that 35% sales figure from MeadWestvaco is down considerably from the 54% of fiscal 2012. 

Despite the progress, it might be best for investors to give CatchMark a miss just now despite its fattened dividend. The company is still new to the market and has yet to flip to consistent profitability or positive cash flow. So for the moment, the future prospects for its dividend look shaky.

For those who want to take the plunge anyway, CatchMark's payout is to be dispensed on Sept. 15 to shareholders of record as of Aug. 29.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers