Aetna (AET) doubled dividend, but offers a yield below the market.

Aetna’s (NYSE:AET) dividend was increased by an incredible 100%.  Its overall yield is now 1.54% with the new dividend increase. The firm started paying a dividend in 1993.

Aetna operates as a health care benefits company in the United States. It operates through three segments: Health Care, Group Insurance, and Large Case Pensions. The Health Care segment offers medical, pharmacy benefit management service, dental, behavioral health, and vision plans on an insured and employer-funded basis.  The company was founded in 1853 and is based in Hartford, Connecticut.

Aetna has maintained a three-year growth rate of dividends of 37 percent. Aetna currently ranks 2nd in dividend yield within the large cap healthcare, health care plans category. The quarterly dividend for the April payment will be $0.50 versus the prior year rate of $0.25 per share. Aetna is not a member  of our Top 100 Dividend Stocks.  (see below).

The dividend will be paid at the new higher rate on April 28, 2017, to shareholders of record at close of business on April 13, 2017. Aetna Inc. is currently priced at $129.51. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
4/13/2017 0.5
1/10/2017 0.25
10/11/2016 0.25
7/12/2016 0.25
4/12/2016 0.25
1/12/2016 0.25
10/13/2015 0.25
7/14/2015 0.25
4/7/2015 0.25
1/13/2015 0.25
10/14/2014 0.225
7/8/2014 0.225
4/8/2014 0.225
1/14/2014 0.225
10/8/2013 0.2
7/9/2013 0.2
4/9/2013 0.2
1/8/2013 0.2
10/9/2012 0.175
7/10/2012 0.175
4/10/2012 0.175
1/11/2012 0.175
10/11/2011 0.15
7/12/2011 0.15
4/12/2011 0.15
11/10/2010 0.04


Analysis of Aetna is based upon our five key criteria for the Top 100 list, which include;

Category Value Score
Dividend Yield 1.54% 333
Dividend Growth (3-7 year avg) 134% 1
Forward P/E 13.37 76
S&P Financial Rating A 120
Beta 0.90 100
Total Score 630
% Yield 3 Year Div. Growth Rate 7 Year Div. Growth Rate SPS 2016 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr low Yield % 5 yr max Yield %
1.54% 37% 232% 188.55 0.68 0.40 1.05 0.74% 1.87%

Positives;

  • Aetna has paid out a dividend consecutively for the past 24 years.
  • Aetna maintains an investment grade rating of A.
  • Aetna has maintained a three-year growth rate of dividends of 37 percent.
  • Aetna maintains a beta of 0.90, lower than the average company.
  • Aetna is trading below its ten-year average price/sales (P/S) ratio.

Negatives;

  • Aetna’s dividend yield is below that of the S&P 500 Index.
  • Aetna’s stock has tripled in price in the past three years.

Latest Earnings & Overall Analysis:

Aetna issued its earnings data on January 31st. The company reported $1.63 EPS for the Q4 quarter, topping the consensus estimate of $1.45 by $0.18.   Aetna’s health care medical benefit ratio was up to 82.1 percent versus 81.9 percent the previous year. This statistic indicated the amount of claims versus revenue. The firm’s total revenue climbed by over 5 percent at $15.7 billion. This was slightly below analyst estimates of $15.8 billion. The fall in revenue and earnings was due to a fall in membership, a higher benefit ratio, and additional restructuring costs.  Aetna had a $200 million plus expense for Q4 for a new voluntary retirement program.  Medical membership for Aetna was just above 23 million Americans for Q4. This was a half million lower than at December of last year. The firm projected 2017 earnings per share for 2017 of around $8.50 per share. This was also about 30 cents shy of analysts’ estimates.

Aetna’s individual membership constitutes less than 5% of its total membership, thus its less exposed to the health care exchanges. Thus, despite the uncertainty around Obamacare and what happens with the replacement plans, the firm is less immune to major changes.  Aetna’s recent merger with Humana was also terminated. Aetna is paying Humana a $1 billion breakup fee. Increased competition is always a concern, especially with the President’s new plan to have a nationwide system for better competition between insurance firms.

Aetna’s position in the government markets is strong. It has stable earnings and a reliable customer base.  Aetna will spend $3.3 billion to buy back stock, which will be more than 20 million shares.  The firm has an excellent balance sheet and an A rating from S&P. The stock has a beta below 1.  It trades at a below market multiple based on P/E.  The major question for shareholders is will the overhaul of the U.S. healthcare market bring on too much uncertainty and more competition. Also, has the tripling in share price since 2012 allowed investors a good entry point.

2016 2015 2014 2013 2012
Earnings per Share 8.05 7.71 6.7 5.85 5.13
Annual Dividend 1 1 0.9 0.83 0.73
Payout Ratio 12.42% 12.97% 13.43% 14.19% 14.23%

Overall the firm is well placed in the market. Its 37% percent growth rate in dividend is very strong. But due to price appreciation, its yield is still below the S&P 500 index, even with the large increase in its annual payout. It is also below other firms in the healthcare sector. But its payout ratio is low, which offers the opportunity for future growth. A mid-20s payout ratio should be considered by management to entice dividend investors.

Earnings per Share 2017 (projected) 8.8
Dividend 2
Payout Ratio 22.73%
Based on the firm’s substantial price gains since 2012, uncertainty with repeal and replace, and below average dividend yield, Aetna Inc. does not qualify as one of our Top 100 Dividend Stocks.  Please subscribe to our monthly premium newsletter to find out more about which stocks are listed in our model portfolio.  

Aetna Inc. Dividend Yield Historical Chart (Click to enlarge)

aet2

Chart Explanation:  Dividend growth stocks may be viewed undervalued when the current yield is above historical readings for the past 5 years. 

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