AET Aetna Inc. (delisted)

Health insurer Aetna Inc. (AET) has unveiled a plan to buy back an additional $750 million of its common stock over time.  This will boost the company’s repurchase authorization to $1.06 billion. Concurrently, the company also declared a regular quarterly dividend payment of 15 cents per share.

Stronger financial performance by the Hartford, Connecticut-based insurer for the past several quarters has given it a growing supply of cash to spend on share buybacks, dividend payment and mergers and acquisitions.

In comparing share buybacks and dividend payments, Aetna has historically favored the former than the latter. During the first half of 2011, the company has used $700 million of cash in buying back shares compared to $57 million used for paying dividend.

Aetna has been consistently paying dividend for a long time. In the current uncertain market scenario, investors are shaky and are attracted to dividend paying stocks.

With historically low rates of interest and the government’s “Operation Twist” aimed at reducing the long term treasury interest rates, yield on US treasuries are trending lower. Thus stocks with a steady history of dividend payments are catching the eye of yield-hungry investors.

Given Aetna's solid operating fundamentals, we expect a strong probability of increasing dividend going forward. Moreover, regular dividend payments will relieve investors' anxiety in terms of the effect of the new health care law.

Aetna has been benefiting from low health care use which has helped its bottomline. And with Government’s aim to keep interest rates at bay at least through 2012, high-dividend paying stocks with strong operating fundamentals, like Aetna will tend to outperform the index along with providing a safety cushion to shareholders. 

Peers - UnitedHealth Group Inc. (UNH), WellPoint Inc. (WLP), CIGNA Corp. (CI) all have been proactively returning excess cash to shareholder’s. We expect carriers in this sector to maintain this stance in the near term as the industry continues to benefit from low medical utilization thereby, reducing claim payments and leaving surplus cash with the companies.

 
AETNA INC-NEW (AET): Free Stock Analysis Report
 
CIGNA CORP (CI): Free Stock Analysis Report
 
UNITEDHEALTH GP (UNH): Free Stock Analysis Report
 
WELLPOINT INC (WLP): Free Stock Analysis Report
 
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