Aetna Enhances Shareholder Value - Analyst Blog
December 06 2011 - 12:05PM
Zacks
Last Friday, health insurer Aetna Inc. (AET)
announced that it has increased its quarterly dividend by 17% to
17.5 cents per share. The new dividend will be paid on January 27,
2012, to shareholders of record as on January 13, 2012.
With this increase, Aetna’s annualized dividend yield has moved
to 1.7% from 1.5%. This keeps the company ahead its peers including
UnitedHealth Group Inc. (UNH) (offers 1.3%
dividend yield), WellPoint Inc. (WLP) (1.5%),
Humana Inc. (HUM) (1.0%) and CIGNA
Corp. (CI) (0.10%).
With heavy cash inflow attributable to strong results for the
nine months ended September 30, 2011 (operating earnings per share
up 38% year over year), this marks Aetna’s second dividend hike
this year. Previously, in February, the company increased its
dividend from 1 cent to 15 cents per share.
Aetna has always preferred buying back stocks than paying
dividend as a way to reward shareholders. For the past 10 years, it
has been spending approximately 81% of cash flow from operations on
share repurchases. Prior to the February dividend hike, Aetna used
to offer token annual dividends (4 cents in 2010). But, the company
changed its capital deployment strategy since February to restore
investors’ confidence amid increased concerns about the impact of
the HealthCare Reform on the company’s performance.
However, Aetna’s witnessed better-than-expected results in the
first three quarters of 2011 and the minimum medical loss ratio
mandate that started at the beginning of this year did not have any
major negative repercussions on the profitability. Moreover,
results of the last nine months reflected strong performance across
all product lines as a result of lower-than-projected utilization,
disciplined execution of pricing and medical cost management
strategies.
We believe that Aetna will continue increasing dividend going
forward as the tailwinds— lower medical utilization, positive
accretion from CVS Caremark pharmacy benefit management deal,
higher demand for experience rated business and rational pricing –
offset the headwinds — lower commercial risk membership, Medicaid
pricing pressure. This would result in higher-than-expected
earnings.
Aetna’s dividend paying ability will also be supported by
significant earnings accretion from its successful capital
management strategy ($1.6 billion on acquisition and $1.2 billion
on buying back shares for the nine months ended September 2011).
Our optimism on potential dividend increment from the company has
further strengthened by the fact that the company has recently
revised its 2011 earnings guidance upwards for the third time.
Currently, the company expects 2011 earnings per share of $5.00, up
from $4.60–$4.70 previously.It has also indicated that its 2012
earnings would be at least $4.80 per share.
Aetna currently retains a Zacks # 1 Rank, which translates into
a short-term ‘Strong Buy’ rating. Considering the fundamentals, we
are also maintaining our long-term “Outperform” recommendation on
the shares.
AETNA INC-NEW (AET): Free Stock Analysis Report
CIGNA CORP (CI): Free Stock Analysis Report
HUMANA INC NEW (HUM): Free Stock Analysis Report
UNITEDHEALTH GP (UNH): Free Stock Analysis Report
WELLPOINT INC (WLP): Free Stock Analysis Report
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