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.

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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.

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