Dividend Investor Portfolio #9: Ensuring Proficiency
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Dear Investor,
Welcome to the 9th edition of TipRanks’ Dividend Investor Portfolio & Newsletter.
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Market-Moving News: May 20, 2024
Stocks rallied for another week, with the Dow Jones Industrial Average (DJIA) crossing the 40,000 mark for the first time. The stock rally received a fresh boost last week from a benign CPI report, as well as from a weaker-than-expected retail sales print. These data points ignited speculation that the economy is cooling, elevating chances for the Fed to cut rates in the next few months.
The blockbuster earnings season has also strongly added to investor enthusiasm. With over 90% of the S&P 500 companies having reported, average Q1 EPS growth stands at 7.3%, which is the second-highest rate in two years.
This week, investors’ attention will be focused on the minutes from the Federal Reserve’s last policy meeting and the earnings report published by Nvidia (NVDA), the S&P 500’s leading engine of growth during this rally.
The Fed’s minutes are not expected to contain many surprises, given that many of the central bank’s members have been sharing their opinions on monetary policy following the meeting. However, the minutes could spell greater clarity on the Fed’s projected rate-cut timeline and the level of consensus among the members about monetary easing.
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This Week’s Quality Dividend Stock Idea
Unum Group (UNM) is an insurance company, providing financial protection benefits in the U.S., U.K., Poland, and other countries. Unum is the #1 provider of disability income in both the United States and the United Kingdom. It also offers other insurance products including accident, critical illness, and life insurance, as well as workplace leave management and mental health policies.
The company was established in 1848 as Union Mutual and changed its name to “Unum” in 1986. Over the years, Unum pioneered many innovations in the field of insurance. It was the first American company to reinsure the business of another firm, it offered the industry’s first group life insurance plan and group long-term care coverage, and it created employee assistance plans with group disability coverage.
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Growing Insurance Business
Unum has steadily grown its offer portfolio, market reach, and geographical presence through internal efforts as well as through mergers and acquisitions. The company expanded to the U.K. in the 1990s and to Poland in 2018. It merged with Provident Companies, Inc., in 1999, creating the United States’ largest disability insurance provider. In 2007, the company took on the name “Unum Group” to better reflect its expanding market presence.
Unum Group operates through three main business segments: Unum U.S., Colonial Life, and Unum International. In addition, it manages a Closed Block segment, which is responsible for legacy products that are still serviced but not actively marketed. Unum U.S. and Colonial Life segments are focused on the U.S. market, with the first segment responsible for group insurance lines. Colonial Life is focused on individual insurance products.
The Unum International segment includes Unum U.K. and Unum Poland subsegments. Despite the fast growth in the company’s international business, Unum U.S. is responsible for over 70% of its annual revenues, while Colonial Life provides almost 20%. In the United States, Unum is a market leader in group and individual disability benefits, one of the largest providers of group life and voluntary workplace benefits, and a growing carrier of dental and vision policies.
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Robust Performance, Strong Finances
Headquartered in Chattanooga, TN, Unum has a market cap of $10.05 billion. With annual revenues of $12.4 billion, the company ranks #266 on the Fortune 500 list of the largest U.S. companies by revenue. In 2023, roughly 39 million people around the globe were insured by Unum, and it paid some $7.9 billion in benefits. Over 182,000 businesses in the U.S. and the U.K. offer benefits provided by Unum to their employees, while one in three companies on the Fortune 500 list insure their workers with Unum.
Despite fast business expansion and heavy investments in digitalization, Unum retains its robust financial health. It has a low net debt-to-equity ratio of 17% and strong debt and interest coverage ratios. The company’s credit rating was recently lifted by Fitch to “BBB+” from “BBB”, with the agency citing strengthening balance sheet fundamentals, including its capital metrics, and a notable increase in profitability. Fitch applauded Unum’s solid capital position and strong business profile, supported by scale, product breadth, and generally low-risk new business profile.
Unum Group did experience declining revenues in the wake of the pandemic, but it has already returned to its previous growth trend. In the past five years, revenues grew at a CAGR of ~2%. Thanks to the leading position in its end markets, Unum was able to maintain its fast rate of earnings-per-share growth, with the EPS increasing at a CAGR of 22% in the same period.
Outside of the small pandemic-related slowdown, Unum’s adjusted earnings display stable long-term growth rates, indicating income reliability. Moreover, UNM has remained highly profitable through different economic and market cycles, including the Global Financial Crisis of 2008 and the COVID-19 pandemic.
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Dividend Contender
Unum has been paying dividends since 1987, increasing them annually for the past 20 years. This track record gives UNM the status of a “Dividend Contender”, reserved for companies that are on their way to becoming Dividend Aristocrats.
As of today, Unum Group’s dividend yield stands at 2.75%, higher than the sector average. In the past decade, dividends grew at a ~10% annual rate, with the payout growth expected to accelerate to 12-13% in the next several years. That outlook is based on the company’s robust finances and strong profitability, as well as on its very moderate earnings and cash flow payout ratios. In Q1 2023, Unum’s management approved a 15% hike to its dividend payout, beginning with the dividend to be paid in the third quarter of 2024.
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Total Return in Focus
Unum is committed to a long-term capital allocation strategy, utilizing its strong cash flows to create additional value for its shareholders. The company’s priorities are investing internally to drive organic growth, utilizing compelling M&A opportunities, and returning capital to shareholders through dividends and share repurchases.
In October 2023, UNM’s board of directors approved a share repurchase program authorizing the company to repurchase up to $500 million of its common stock beginning on January 1, 2024. This program follows Unum’s previous buyback authorization, within which the company repurchased $500 million of its shares during 2023. In Q1 2024, Unum repurchased $122 million of its stock.
Beyond dividends and buybacks, Unum’s shareholders benefit from the stock’s robust performance. In the past 12 months UNM’s gain of ~15% trails that of the S&P 500 due to the industry-wide headwinds registered in 2023. However, year-to-date, UNM has risen by over 16%, outperforming the market’s benchmark.
Despite this outperformance, Unum remains attractively valued, with the P/E way below the average for both the Financial sector and the Insurance industry. Furthermore, based on projected cash flows, the company trades about 50% below its fair value, placing it firmly within the value category.
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Investing Takeaway
Unum Group is a leader in its field, providing comprehensive insurance products to a loyal customer base, and wielding significant pricing power that helps it maintain robust profitability in all market conditions. Its stellar financial health and consistent earnings growth support the generous shareholder compensation through buybacks and dividends, which are growing at a fast clip and are expected to continue rising for years to come. The stock’s current moderate valuation signals a compelling combination of income growth and value play, while providing an attractive opportunity to include Unum in long-term income portfolios.
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Dividend Investor Portfolio
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Portfolio News
¤ Amgen (AMGN) has announced that the U.S. Food and Drug Administration (FDA) has granted accelerated approval to its new therapy for extensive-stage small cell lung cancer, expected to be marketed under the name “Imdelltra”. The approval was based on encouraging results from the Phase II trial of the drug.
¤ Allianz (ALIZY) reported its Q1 2024 results, which included stronger-than-expected growth in total business volume, operating profit, and net income. The European financial powerhouse surpassed analysts’ EPS estimates by 15%.
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Recent Trades
None at the moment, although we are considering adding a stock to our portfolio. Stay tuned.
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Portfolio Attributes
| Dividend Portfolio Yield |
Dividend Growth Rate | Annual Dividend Income |
| 3.68% | 8.41% | $3,698.00 |
| Yield-on-Cost Adjusted |
Weighted Growth | Equal-Weight 100K Portfolio |
Current Portfolio
| Name | EX-Dividend Date | Payment Date | Dividend Yield | Annual DPS |
| Automatic Data Processing (ADP) | Jun 14, 2024 | Jul 01, 2024 | 2.18% | $5.60 |
| Allianz SE ADR (ALIZY) | May 08, 2025 | May 13, 2025 | 5.25% | $1.50 |
| Amgen (AMGN) | May 16, 2024 | Jun 07, 2024 | 3.23% | $9.00 |
| BlackRock (BLK) | Jun 07, 2024 | Jun 23, 2024 | 2.68% | $20.40 |
| Edison International (EIX) | Jul 01, 2024 | Jul 28, 2024 | 4.29% | $3.12 |
| JPMorgan Chase (JPM) | Jul 05, 2024 | Jul 31, 2024 | 2.20% | $4.60 |
| Kroger (KR) | May 14, 2024 | Jun 01, 2024 | 2.02% | $1.16 |
| LyondellBasell (LYB) | May 26, 2024 | Jun 06, 2024 | 5.03% | $5.00 |
| Philip Morris (PM) | Jun 22, 2024 | Jul 11, 2024 | 5.82% | $5.20 |
| Qualcomm (QCOM) | May 30, 2024 | Jun 20, 2024 | 2.03% | $3.40 |
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Click here for more stock market analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
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Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment, and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
