More than 58 million Americans are enrolled in Medicare this year. Around 19.5 million of them are in Medicare Advantage plans. More than 44 million are signed up for Medicare Part D prescription plans. It's a huge and growing market that presents opportunities for health insurers -- and for dividend-seeking investors.
Many of the largest health insurers in the country offer Medicare Advantage plans and Medicare Part D plans. Quite a few of them also reward shareholders with quarterly dividends. Here's why Aetna (AET), Anthem (ELV 0.15%), and UnitedHealth Group (UNH 0.23%) stand out as the top dividend stocks in Medicare.
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Aetna
In 2016, Aetna covered nearly 1.4 million Americans through its Medicare Advantage plans. Its membership included another 3 million individuals enrolled in its Medicare Part D prescription drug plans. In addition, Aetna covered 685,000 Americans with its Medicare supplement plans.
Aetna made nearly $63.2 billion in revenue last year, with its profits totaling almost $2.3 billion. More than 41% of the company's total revenue stemmed from its government programs business, much of which is generated from its Medicare plans.
Aetna's dividend currently yields 1.38%. That's a big improvement for the health insurer, since Aetna doubled its dividend payment earlier this year. Aetna has a low dividend payout ratio of 22%, which indicates the company should be in good shape to increase its dividend more in the future.
Anthem
Anthem served 1.4 million Medicare members in 2016. This figure includes both Medicare Advantage and Medicare supplement enrollees. The health insurer also covered 979 million Americans through its Medicare Part D prescription drug plans, 629 million of which also participated in Anthem's Medicare Advantage plans.
The company reported revenue of $84.2 million last year, with earnings of $2.5 billion. Over 53% of Anthem's total revenue was generated by its government business segment. This segment includes Medicare, Medicaid, and Federal Employee Program operations.
Anthem claims a dividend yield of 1.43%. The company initiated its dividend program in 2011. Its dividend payments have increased 160% since then. Anthem's payout ratio currently stands at 25%, a level that should allow the insurer to keep increasing dividends in the future.
UnitedHealth Group
UnitedHealth Group, the nation's largest health insurer, covered 3.6 million Americans in 2016 with its Medicare Advantage plans. The company had nearly 4.3 million members enrolled in its Medicare supplement plans. UnitedHealth's biggest Medicare presence, though, was in the Part D prescription-drug program, where it had over 4.9 million members.
The company generated revenue of $184.8 billion last year, with earnings of more than $7 billion. Roughly 30% of UnitedHealth Group's total revenue came from its Medicare and retirement business segment.
UnitedHealth's dividend yield stands at 1.43%. The company has increased its dividend for seven consecutive years. UnitedHealth Group uses only 32% of its earnings to fund the dividend program. It should have no problems keeping the streak of dividend increases going.
Best pick
It's not difficult to pick the best overall dividend stock in Medicare. UnitedHealth Group rises to the top for several reasons.
The company is tied with Anthem in claiming the highest dividend yield. Although UnitedHealth's payout ratio is a little higher than Anthem's, that's not a strike against the stock. The tiebreaker, in my view, is growth prospects. Analysts project that UnitedHealth Group will grow earnings by nearly 15% annually over the next several years, compared with 11% for Anthem and 12% for Aetna.
UnitedHealth Group stock has performed very well so far in 2017, with shares rising by double-digit percentages thanks in part to strong first-quarter results. The company expects the year to be a good one, helped by its withdrawal from most Obamacare exchanges.
