Stocks have gotten beaten up in 2022, and the S&P 500 is down 17% year to date. Given the current environment, it's hard to find stocks that haven't gotten knocked down.
However, some stocks can perform well even in this market. In particular, value stocks and dividend stocks haven't seen nearly the declines that their growth stock counterparts are getting hit with.
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One dividend stock that has reported solid earnings and impressed investors with its forward guidance is the group insurance company Unum Group (UNM 0.35%). While the company faced difficulties when the pandemic initially began in 2020, things are starting to look up for the company.
The pandemic caused big headwinds to Unum in 2020
Unum Group offers life insurance along with other benefits like dental and vision coverage, mostly to employer networks.
Image source: Getty Images.
The emergence of the global pandemic in 2020 hurt Unum Group's earnings in a few different ways. Unemployment rates in the U.S. hit 14% in the early days of the pandemic and falling employment levels led to premium growth slow down for Unum Group. The company also faced higher payouts due to the pandemic as older individuals were hit worst by the pandemic. Finally, low interest rates were a headwind for the insurer, who struggled to generate much interest income from its holdings.
Unum is turning the corner now
The labor force has mostly recovered since then and Unum Group put up a solid quarter of earnings in the first quarter of 2022. The insurer saw premium income increase by 1% from the same quarter last year. More importantly, Unum saw Q1 adjusted operating income grow 31% year over year.
What had investors optimistic was management's updated guidance for 2022. Unum expects adjusted operating income per share to grow 15% to 20% for the year. This was a significant increase from its previous forecast of 4% to 7% growth. The raised guidance had investors optimistic, and the day following the earnings release, Unum Group's stock price jumped nearly 14%.
Headwinds have become tailwinds that can work in Unum's favor
What is working in Unum Group's favor is a reversal of the issues that plagued it when the pandemic first emerged. CEO Richard McKenney talked about how "the current business environment is favorable for our company, with higher interest rates and a strong labor market resulting in an improved earnings outlook."
Moving forward, Unum executives expect premium growth to remain solid and claims relating to COVID-19 to lessen. Falling unemployment rates mean more employees in the workforce, which would increase the amount companies will pay toward employee benefits -- which is great for Unum Group.
Image source: Federal Reserve Economic Data.
The company expects to see its benefit ratio drop as well. The benefit ratio is a key measure for insurers like Unum Group. This metric measures the ratio of claims paid out by the total premiums collected from customers.
Unum's group life benefit ratio peaked at around 96% in 2021 (the lower the ratio, the better). The insurer expects this ratio to improve to 80% to 85% this year and settle in its historical range of 70% to 75% in the coming years.
Image source: Unum Group.
A strong balance will help too
Another thing working in Unum Group's favor is its strong balance sheet. The company is currently sitting on $1.3 billion in available cash and assets and is leveraged at 25% -- its lowest level since 2014.
This strong capital position puts the insurer in a position to put the cash to work in higher interest-earning assets and return money to shareholders through share repurchases and dividends.
Unum's board has approved $200 million in stock buybacks annually and the dividend yields investors a solid 3.5%. The company trades at a cheap valuation with a price-to-earnings ratio of just 7.5. This company has favorable tailwinds to its business and that makes it a solid stock you can add as part of a diversified portfolio.
