In a market where income investors have options, the 10-year Treasury yield of 4.2% serves as a "risk-free" rate. It represents the guaranteed return on government debt where principal loss is virtually non-existent. To compete with the relatively high rate, a dividend stock must offer price appreciation and growth potential backed by solid coverage ratios. These three companies fit that bill.
Trading members for pricing discipline
UnitedHealth Group (UNH 2.49%) operates the nation's largest private health insurer, alongside Optum, a health services platform that provides pharmacy benefits, data analytics, and direct patient care. In an effort to support profitability, the company expects to lose up to 2.8 million members after increasing rates in response to rising medical costs.
Shares recently dropped 20% following the release of fourth-quarter (Q4) results due in part to a rising medical care ratio (MCR) that reached 91.5%, its highest level since costs spiked last year. Making matters worse for the insurer, a proposed 0.09% increase for 2027 Medicare Advantage rates, well below industry expectations, arrived before the earnings release. Adding to the uncertainty is the ongoing Department of Justice (DOJ) criminal investigation into Medicare billing practices.
Despite the ongoing uncertainty, the 3.2% dividend is safe. The business generated $16 billion in free cash flow (FCF) last year, funding the payout nearly twice over, and management expects earnings per share (EPS) growth of around 8.5% this year. After its recent retreat, the stock trades for 15.5 times next year's earnings target of $17.75 per share.
A Nashville icon hiding in plain sight
Ryman Hospitality Properties (RHP 1.18%) is a real estate investment trust (REIT) that owns large-scale convention resorts and iconic country music venues. Its portfolio features five of the seven largest non-gaming convention hotels in the U.S., managed by Marriott under the Gaylord brand, alongside Nashville landmarks like the Grand Ole Opry and Ryman Auditorium.
Image source: Getty Images.
In Q3, Ryman reported a 15.5% drop in adjusted funds from operations (AFFO) per unit. The weakness was caused by planned renovations at key properties, a shift toward lower-margin association groups, and a rise in short-term cancellations related to the government shutdown.
While these temporary issues pressured near-term margins, bookings are up nearly 8% for this year. The stock offers a 4.8% yield, backed by a 57% payout ratio as Ryman produces nearly double the cash needed to sustain its dividend. Shares trade at just 12 times AFFO per unit expectations for fiscal year 2025, which is compelling given the rare exposure to the growing country music scene in Nashville.
Fee-based earnings drive the income stream
ONEOK (OKE +0.54%) has grown from a regional natural gas liquid (NGL) business into a fully integrated platform following three major deals worth over $25 billion. Integrating Magellan, EnLink, and Medallion gives ONEOK a 60,000-mile network with the transport and processing capacity to move gas, crude, and refined products from its Bakken and its enhanced Permian position to Gulf Coast export hubs.
NYSE: OKE
Key Data Points
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped 37% year over year to $2.1 billion in Q3. The expansion was primarily driven by major contributions from the EnLink and Medallion assets, as well as higher gas and NGL processing volumes.
The stock is up nearly 15% over the past month, yet it still trades at just 11 times EBITDA with a yield of 5.1%. While record spending on integration and pipeline repairs currently keeps its free-cash-flow payout around 100%, this should improve as major projects finish this year.
