As a result of the health care sector’s latest restrictions, Humana Inc. (HUM) plans to offer a quarterly dividend, besides raising the fiscal year 2011 forecast.
Accordingly, Humana’s Board has initiated a quarterly cash dividend of 25 cents per share, payable on July 28 to shareholders of record on June 30. On an annual basis, the payout will represent a yield of nearly 1.4% based on April 25’s closing stock price.
Humana is expected to spend about $42.5 million per quarter on its new dividend. Moreover, Humana has also decided to replace its share repurchase authorization of up to $250 million with an authorization for repurchases of up to $1 billion by June 30, 2013.
In addition to the dividend declaration and the increase of the stock buyback plan, Humana has hiked its fiscal 2011 earnings forecast to a range of $6.70 to $6.90 per share from $5.95 to $6.15 per share. The new forecast represents growth of about 4%-7% from 2010 earnings of $6.47 per share, against its previous expectation of a decline in 2011.
Humana also stated that it expects its first quarter earnings, which will be reported on May 2, to exceed its previous forecast.
The primary reason for all these measures being taken by the company is the new rule of the health care reform that essentially requires the company to pay out a minimum percentage of premiums on medical claims or issue rebates to consumers. This, however, has raised a concern among investors that the compliance of this requirement, known as medical-loss ratio, would lower profits. However, on the contrary, the company has raised profit expectations.
Humana expects lower-than-anticipated medical bills in the first quarter, and thus has increased the profit expectations. Its peer UnitedHealth Group Inc. (UNH) also reported its first quarter 2011 earnings on April 21 of $1.22 per share, ahead of the Zacks Consensus Estimate of 89 cents.
UnitedHealth also provided a 2011 operating earnings guidance of $7.2 billion to $7.5 billion, after citing that new U.S. mandates on healthcare spending proved less costly than expected.
Humana stated that it will also realign its business units using the main segments of retail, employer group, health and well-being services, and other businesses. The decision to realign its units was done to better reflect its business model.
The retail segment includes Medicare Advantage and prescription drug plans, and individual health insurance business lines. The employer group includes employer group coverage and group Medicare Advantage and prescription drug plans. Health and well-being services include pharmacy solutions, primary care services, home care services and integrated wellness services.
Humana’s military and Medicaid business units will now be reported under Other Business, along with a closed block of long-term-care insurance business and a limited-income newly eligible transition (LI-NET) pharmacy program that Humana administers for Medicare.
With the dividend announcement, Humana became the fourth largest health insurer to announce a larger dividend payment in the past year. WellPoint Inc. (WLP) also paid a quarterly cash dividend of 25 cents per share in the first quarter of 2011, reported on April 27.
The quantitative Zacks #3 Rank (short term ‘Hold’ rating) on the stock indicates no directional pressure on the shares over the near term.
Headquartered in Louisville, Kentucky, Humana Inc. is one of the largest health care plan providers in the United States. Humana provides health insurance benefits under Health Maintenance Organization (HMO), Private Fee-For-Service (PFFS) and Preferred Provider Organization (PPO) plans. The company also provides other benefits with specialty products including dental, vision and other supplementary benefits.
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