UnitedHealth Group (UNH -0.83%) is America's largest healthcare insurer by market capitalization. The company has faced some headwinds recently, including talk of increasing public health plans since the Democratic Party took control of the U.S. government in November. But these fears are largely overblown, and there are in fact several reasons this company should occupy a portion of your portfolio

Millions of customers worldwide

Since its founding in 1974 as Charter Health Incorporated, UnitedHealth Group has grown to be one of the biggest health insurers on the planet. Operating in 130 countries and all 50 U.S. states, the company employs almost 330,000 people, including 85,000 physicians and nurses. With a market cap of nearly $350 billion as of 2021, the company insures more than 130 million people worldwide.  

Diversification means revenue

UnitedHealth Group has two divisions. Healthcare coverage and benefits services are offered through UnitedHealthcare, while pharmacy services and information and technology-enabled health products come through Optum. The overall company generates revenue from a variety of sources, including premiums on risk-based products, fees from various services, sales of healthcare products, and services and investments.

The Optum division encompasses three separate sectors: OptumRx, a mail-order pharmacy; OptumHealth, which operates health savings accounts; and OptumInsight, a payment processor for healthcare providers. Overall, Optum accounted for $136 billion, or about 52%, of UnitedHealth Group's $257 billion in 2020 revenue.

Hand holding lit lightbulb as the 0 in 2021

Image source: Getty Images.

A wide moat doesn't hurt

I believe UnitedHealth Group presents a wide moat for investors looking for safe and strong businesses to hold through booms and busts. In 2019, UnitedHealth Group was the market leader in the U.S. health insurance space, with a 14.1% share. That said, it has lots of competitors -- including Anthem (9.6% share), Humana (8.4% share), and Centene (8.3% share).

UnitedHealth Group maintains a comfortable lead among its peers. Additionally, there is warranted optimism about how UnitedHealth Group might be able to separate itself from the pack. That's thanks to the exact worries that have the shares on sale today -- political concerns about the cost of private health insurance that have many wanting to eliminate it entirely in favor of a government-run program.

But while it would seem this would be a challenge for UnitedHealth Group, management is already adapting its business model -- and it's proven that it can excel in a variety of scenarios. The company hopes to provide medical and pharmaceutical benefits through employers and even government programs, such as Medicare Advantage and Medicaid managed care plans, thus setting it up for success in even the most adverse of scenarios, where private insurance might not exist. 

It has been able to execute effectively on these plans so far -- on the company's fourth-quarter earnings call, CEO David Wichmann said that the insurer expects to add 900,000 new members to its Medicare plans, including individual, group, and dual special needs coverage. Wichmann said that UnitedHealthcare has added 3.5 million more Medicare Advantage members over the past five years.

The company has prepared itself on many fronts, increasing spending on technology and expansion of its Optum division, which will undoubtedly bring in more profit whether public or private systems prevail. This will also increase UnitedHealth Group's diversification along its several business lines. Management seems very focused and is adapting to ensure the company doesn't rely too much on one source of revenue. This diversification will be key for UnitedHealth Group in the long run. 

Why it's a great buy

The past 10 years have been remarkable for shareholders of UnitedHealth Group. If you had invested in the company in April of 2011 and held till today, you would have made 722% -- without reinvesting dividends. (Meanwhile, if you had invested in the SPDR S&P 500 ETF, you would only be up 197%.)

Going forward, though, I do expect the company to outperform in 2021; guidance for the full year, released in January, called for a 9% gain in adjusted earnings from 2020. If stock price follows earnings growth, we could be looking at a stock price of near $400 by the end of 2021. 

Did I mention that UnitedHealth pays a dividend? The current yield is 1.34%, and it's grown at a 25.16% rate per year for the past 10 years. With its wide moat and its continuing innovation (business and technological advancements across both UnitedHealth and Optum, as well as improvements in the telehealth space), as well as its industry-leading market share, this is a company that can survive the lows and thrive during the highs. Buying UnitedHealth not only adds stability to your portfolio but should drive returns well into the future.