UnitedHealth Group (UNH 1.42%) stock has been in a free fall due to a flurry of bad news. Heading into trading this week, shares of the health insurer had crashed more than 40% thus far in 2025. That's an incredible decline in value, especially given how large the business is. But even with the drop, its market cap is still over $270 billion, making it one of the largest healthcare companies in the world.
Due to the sharp price decline, the yield from the stock's dividend has climbed to 2.8%, which is higher than the S&P 500 average of 1.3%. That isn't typical for UnitedHealth's stock, which normally offers a much smaller yield. Could this be a sign that its dividend may be in danger, and that a cut could be around the corner?
Image source: Getty Images.
What the company's financials say about the dividend's safety
A declining stock price affects dividend yield since investors collect the same dividend but at a lower price. But as that yield rises, that doesn't necessarily mean the payout is becoming riskier along the way. In order to assess a dividend's overall safety, investors need to consider a company's entire financial picture.
A good place to start is with its payout ratio, which looks at how much of a company's earnings are paid out to shareholders as a dividend. Currently, UnitedHealth's payout ratio is around 35%, which isn't terribly high and it leaves a good buffer; there are no alarm bells here.
I also like to look at a stock's overall free cash flow, as this excludes the impact of non-cash items such as depreciation and amortization. This can give you a much better idea of how secure its dividend really is. Over the trailing 12 months, UnitedHealth's free cash flow has totaled $24.9 billion. And it has paid out just $7.7 billion in dividends over that time frame. As long as the company's business doesn't drastically deteriorate and its cash flow remains strong, the dividend should be just fine.
Future uncertainty is likely the big concern for investors
If you were to look just at UnitedHealth's financials, you would see a dividend that looks safe and may even be a good deal given its above-average yield. But there's risk with UnitedHealth's business these days. And the big problem isn't reflected in the financials.
The company is reportedly in the midst of a criminal investigation about its billing practices and there may even be possible Medicare fraud, according to The Wall Street Journal. Plus, with the U.S. government looking at cutting back on healthcare spending, there are some significant question marks about how strong the company's financials may be in the future if it needs to make changes to its operations or if there are industrywide factors that impact its overall growth potential.
Rather than wait around, investors are pulling their money out of UnitedHealth stock already. News this month of CEO Andrew Witty stepping down for personal reasons also doesn't inspire too much confidence.
If the company's earnings take a hit due to policy changes and enforcement actions, then it's possible the buffer that UnitedHealth enjoys between its earnings and its dividend could shrink. And if that happens, there's a potential that the dividend may need to be cut .
Is UnitedHealth Group stock a buy?
I don't see a reason to worry about UnitedHealth's dividend right now. It looks safe and I don't think the business will be crippled, even if all the worries turn out to be true. UnitedHealth plays an important role in the healthcare industry by providing millions of Americans with healthcare coverage. As of now, and likely for the foreseeable future, the dividend is safe and there may even be room for more increases to it.
If you're willing to hold on amid all this risk and uncertainty, the stock could prove to be a great deal as it's heavily discounted, trading at less than 13 times its trailing earnings; the average stock on the S&P 500 trades at an earnings multiple of just under 24. While this could be a volatile investment to hang on to in the short term, the payoff could be significant over the long haul.
