Last update on 2024-06-28

Humana (HUM) - Dividend Analysis (Final Score: 4/8)

Assessment of Humana (HUM) stable dividend policy performance, using 8-criteria score system, achieving 4/8. Dividend investments require consistency and stability.

Short Analysis - Dividend Score: 4

We're running Humana (HUM) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The analysis reviews Humana's (HUM) dividend policy based on eight criteria. Firstly, HUM's dividend yield is slightly below the industry average and has shown inconsistency over the past 20 years, including periods of zero payouts. Secondly, while the average dividend growth rate is above 5%, it's been highly volatile. HUM's payout ratio is very conservative, averaging 4.31%, allowing room for reinvestment. Thirdly, dividends are usually covered by earnings, ensuring stability. Fourthly, HUM’s cash flow coverage of dividends has seen mixed results but showed improvement recently. Fifth, the company has experienced significant fluctuations in dividend payments, raising stability concerns. Sixthly, HUM has not paid dividends consistently over 25 years, which could worry income-focused investors. Lastly, HUM has engaged in notable stock repurchases only recently, indicating a commitment to returning shareholder value.

Insights for Value Investors Seeking Stable Income

If you’re an investor looking for consistent and stable dividend income, Humana may not be the best choice due to its inconsistent dividend history and lower-than-industry-average yield. However, its recent improvements in cash flow coverage and stock repurchases show positive signs. Investors more interested in potential capital appreciation and those willing to tolerate some volatility might find HUM worth considering for the long-term potential.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield measures the ratio of a company's annual dividend compared to its share price. A higher yield can indicate better returns for investors.

With Humana's current dividend yield of 0.7732% slightly underperforming the industry average of 0.9%, it suggests that Humana's return on investment through dividends is less attractive compared to its peers. Over the past 20 years, Humana's dividend yield has been highly variable, peaking at 1.5% in 2012 but showing multiple years with no dividend payout, such as 2016-2018 and 2020-2022. This inconsistency in dividends might pose a concern for yield-focused investors.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate criterion of over 5% for the last 20 years is vital as it indicates both consistency and the potential of a company to reward shareholders by increasing dividends over time.

The Dividend Ratio data for Humana shows that the dividend per share ratio has fluctuated significantly over the years. Specifically, it has experienced periods of no dividend (represented by 0 values) and negative values, which suggest dividend cuts or inconsistencies. However, significant positive spikes, such as 378% in 2017 and 314.2857% in 2019, suggest instances of substantial dividend hikes. The average Dividend Ratio over the given period is approximately 6.95%, which is slightly above the 5% threshold. These drastic fluctuations, despite resulting in an average growth rate that meets the criterion, mark a trend that isn't smooth or consistently upwards. Therefore, while the average growth rate indicates a positive trend on paper, the volatility should raise concerns for potential investors about the stability and predictability of dividend growth at Humana.

Average annual Payout Ratio lower than 65% in the last 20 years?

Criterion 1.2: Average Payout Ratio lower than 65% in the last 20 years and its importance in dividend analysis.

The average payout ratio for the period from 2003 to 2023 is 4.31%. This ratio is well below the threshold of 65%, indicating a conservative dividend policy. A lower payout ratio implies that the company is retaining a significant portion of its earnings for reinvestment in growth opportunities, debt reduction, or other corporate needs. This trend is positive as it shows financial prudence, leaving ample room for potential future dividend increases.

Dividends Well Covered by Earnings?

Criterion 2: Dividends are well covered by the earnings.

The Earnings per Share (EPS) indicates a company's profitability, while Dividends per Share (DPS) reflects the company's dividend policy and payout to shareholders. For dividends to be considered well covered by earnings, the EPS should be comfortably higher than the DPS over a period of time. This not only ensures the sustainability of the dividend payments but also indicates the company's stability and financial health.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow is crucial because it indicates that the company generates enough cash to comfortably meet its dividend obligations, ensuring payout sustainability without relying on debt or external financing.

Humana's free cash flow and dividend payout amount over the years show a mixed ability to cover dividends from cash flow. From 2016 onward, substantial free cash flow appears with spikes occurring in certain years, particularly 2019 with $4.55B and 2021 with $3.45B, suggesting periods of strong cash generation. However, the dividend coverage ratios for HUM vary, with notable low points in 2018 (20%) and 2019 (9%), highlighting potential strains. More recently, 2022 witnessed a healthy coverage ratio of 38%, signaling positive trends in cash flow utilization for dividends but improvements are needed for consistency.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for Humana (HUM) and why it is important to consider

The analysis of Humana's dividend stability over the past 20 years reveals significant fluctuations. Until 2011, Humana paid no dividends. The payments initiated in 2011 and grew from $0.75 per share in that year to $3.54 in 2023. However, there were significant declines in several years, such as from $2.39 in 2017 to $0.87 in the same year and dropping altogether to zero several times. This signals a lack of stability, raising concerns for income-seeking investors relying on steady dividend income.

Dividends Paid for Over 25 Years?

provide insights into whether a company has issued dividends annually for a span of 25+ years

When evaluating Humana (HUM), it becomes evident that the company has not been consistent in distributing dividends over a sustained period. From 1998 to 2013, there is no record of dividends being issued. The dividend payouts commenced in 2013 with a per-share dividend of $0.75 and saw variations over the subsequent years. The inconsistency is marked by several zero dividend years and irregular dividend amounts. Such inconsistency is typically an undesirable trend for dividend-focused investors, as it does not assure a reliable income stream.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases indicate a company's commitment to returning value to shareholders and can be a sign of financial health.

Humana (HUM) has shown consistent share repurchases primarily in recent years. In particular, the significant repurchasing activities from 2020 to 2022 indicate a strong commitment to reducing outstanding shares, returning value to shareholders, and possibly optimizing capital structure. For instance, between 2020 and 2022, Humana consistently reduced the number of outstanding shares with significant repurchases in 2020 (from approximately 134 million to 132 million), 2021, and 2022. Conversely, the data from before 2020 does not indicate any notable repurchasing activity. Thus, while the average repurchasing activity over the last 20 years may seem low at 12.6732, the recent surge can be regarded as a positive trend. This shift may reflect the company's strengthened financial position, strategic buybacks to boost EPS, or confidence in the future growth.