With healthcare on the American public's mind, this installment of our series will feature three stocks involved in various aspects of that massive industry.
All three, naturally, raised their payouts last week. Without further ado, the details.
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UnitedHealth Group
The country's largest health insurer, UnitedHealth Group (UNH 0.46%), is upsizing its quarterly dividend by 20% to $0.75 per share. And that's not the only item on the rise. The company beat analyst profitability estimates for its first quarter by delivering a steep 31% year-over-year increase in per-share adjusted net profit, on premiums that rose by 12%. Total revenue just missed improving by double digits, growing 9% to almost $49 billion.
The immediate future looks bright for the company. It's projecting around $200 billion in revenue for this fiscal year, which would top the 2016 tally of $185 billion.
Net profit should be well higher. UnitedHealth is estimating that its full-year earnings per share will be $9.65 to $9.85, a dramatic improvement over last year's $7.25.
Meanwhile, the company flipped into positive territory for operating and free cash flow (FCF) in Q1, with the latter coming in at nearly $6 billion. Zooming out to the trailing-12-month period, we can see that FCF has lately been more than sufficient to cover both the dividend payouts and a healthy level of share buybacks. Even with a 20% increase in the distribution, we can expect that dynamic to continue.
UNH Free Cash Flow (TTM) data by YCharts
UnitedHealth's freshly raised dividend will be paid on June 27 to stockholders of record as of June 19. At the most recent closing share price, it would yield just under 1.7%. That's just under the current 1.9% average yield of dividend-paying stocks on the S&P 500.
Universal Health Realty Income Trust
Among the dividend aristocrats, that small set of companies that have managed to raise their payouts at least once annually for a minimum of 25 years, there aren't many healthcare-related stocks, and only two real estate investment trusts (REITs). The only issuer that ticks both boxes is Universal Health Realty Income Trust (UHT 0.34%), a REIT specializing in, yes, healthcare properties. And the company is maintaining its aristocrat status with a 1% bump in its quarterly dividend, to $0.66 per share.
As Americans get older, they're requiring more time at places such as the care facilities Universal Health holds in its real estate portfolio. Accordingly, the company's most recent quarterly revenue figure rose by 9% year over year, to almost $18 million. That was a more robust increase than the 6% rise in the REIT's funds from operations (FFO), the key profitability metric for REITs. It might not sound spectacular, but since the end of last decade, Universal Health has managed to more than double its revenue, while posting the occasional dramatic spike in FFO.
Meanwhile, this conservatively managed company always seems to be able to fund its dividend with the free cash it has on hand. I'd expect that ingrained habit will stay in place, so we can safely assume the REIT will continue to be a unique healthcare REIT dividend aristocrat.
UHT Funds from Operations (FFO) (Annual) data by YCharts
Universal Health's upcoming payout will be dispensed on June 30 to shareholders of record as of June 19. At its most recent closing price, the yield would be 3.5%.
Alexandria Real Estate Equities
Like Universal Health, Alexandria Real Estate Equities (ARE +2.17%) is a REIT that concentrates on healthcare assets. And like its peer, it's raising its quarterly payout, in this case by 4%, to $0.86.
The difference between Alexandria and Universal Health is focus. The former concentrates on laboratory and office facilities for healthcare professionals. That's a hot segment these days, as seen in Alexandria's 25% year-over-year revenue jump for Q1, to nearly $271 million. Even better, adjusted FFO soared by 35% to hit almost $131 million.
Demand is intense: Alexandria was able to increase its rental rates by nearly 30% on renewals and releases during the quarter. And there should be more where that came from. The company is building out aggressively, both through its own developments and from acquisitions. It's also counting on continued rent increases for this fiscal year, and although these probably won't be as aggressive as the Q1 increases were, they should still be enough to drive annual FFO to a projected $5.97 to $6.07 per share -- comfortably higher than 2016's result of $5.51.
I like Alexandria's niche, and I like its assertiveness. I'm also fond of the company's ability to grow its FFO despite the ambitious growth plans. The REIT is in the right business at the right time, so I wouldn't worry much about the future of its dividend.
ARE Total Assets (Annual) data by YCharts
The new Alexandria distribution will be handed out on July 17 to investors of record as of June 30. At the most recent closing share price, the new payout would yield 2.9%.
