To The Moon

$UnitedHealth(UNH)$

UnitedHealth Group is a stock that’s been quietly performing really well in the background—even while a lot of the market has been experiencing turbulence. Over the past 12 months, the stock is up around 15%, which is impressive in and of itself. But even more notable is what’s happened recently. Over the last month, while the broader market has been under pressure, UNH has actually continued to rise—up nearly 7%. That kind of resilience during a sell-off is worth paying attention to.

This is a stock I personally own in my dividend growth portfolio, and for good reason. If we take a closer look at the fundamentals and dividend metrics, you’ll see why this is a long-term compounder that deserves a spot on any serious income investor’s radar.

UNH Dividend Growth: A Decade of Outperformance

Let’s head over to my dividend breakdown and plug in the UNH ticker. One of the first things you’ll notice is the current dividend yield sits at about 1.6%. That’s not going to turn heads based on yield alone—but dividend investing isn’t just about yield. What really matters is the growth and sustainability behind it.

And this is where UnitedHealth shines.

• 10-Year Dividend Growth Rate: Over 16%

• 5-Year Dividend Growth Rate: Over 11.7%

That’s a remarkable track record of compounding shareholder returns. Back in 2014, the company was paying out $1.41 per share annually. As of 2024, that number has soared to $8.18. That’s nearly a 6x increase in just a decade.

Even more importantly, the company has managed this dividend growth while maintaining low payout ratios. The dividend growth has been backed by strong fundamentals, not financial engineering.

Free Cash Flow Dip in 2024: Temporary or Trouble?

But you may have noticed something unusual in 2024—the free cash flow payout ratio jumped to 36.38%, which is notably higher than their usual sub-30% levels.

Here’s what happened.

For the first time in over a decade, UNH experienced a significant decline in free cash flow. In 2023, free cash flow was $25.6 billion, but in 2024, it dropped to $20.7 billion.

This decline wasn’t due to poor execution or a weakening business—it was the result of a massive cybersecurity breach in UNH’s tech subsidiary. The breach exposed personal data of around 190 million people, which had serious financial consequences:

• A ransom payment of around $22 million, paid in Bitcoin

• Additional operational expenses estimated between $2.3 and $2.45 billion

These costs hit the bottom line in 2024, reducing free cash flow and temporarily distorting financial ratios. But—and this is critical—this appears to be a one-time, non-recurring event. The company is already showing signs of rebounding.

2025 Outlook: A Return to Growth

UNH recently released its 2025 business outlook, and the numbers are extremely encouraging. They’re projecting operating cash flow between $32 billion and $33 billion. Let’s put that into context:

• 2024 OCF: $24.2 billion (impacted by the cyberattack)

• 2023 OCF: $29 billion

So we’re not just seeing a recovery—we’re seeing accelerating growth. This makes a strong case that 2024 was an anomaly and not a change in long-term trajectory. That’s great news for dividend investors because rising free cash flow supports higher payouts, more buybacks, and continued financial strength.

And that’s not the only tailwind.

Medicare Reimbursement Bump: Another Catalyst

In a surprise move, the Centers for Medicare and Medicaid Services announced a 5.06% increase in payments—nearly double the 2.83% that was initially projected in January. This kind of policy shift is huge for the managed care space and sent many stocks in the sector sharply higher—including CVS, Elevance Health, Humana, and of course, UnitedHealth Group.

It’s another layer of bullish momentum added to an already strong long-term story.

Balance Sheet Analysis: Understanding the Numbers

Now, I want to address something that trips up a lot of investors when they look at UNH: the current ratio. You might notice it’s below 1, which typically is a red flag for short-term liquidity risk. Normally, I prefer to see a current ratio of at least 1.0, meaning the company has enough current assets to cover its short-term liabilities.

But here’s the nuance: For health insurance companies, a current ratio below 1 is actually very common and not a sign of distress. That’s because their cash flows are incredibly predictable, and they can manage their liabilities more efficiently than companies in other industries.

For UNH:

• Total assets far exceed total liabilities

• Debt-to-assets ratio is just 0.26

So the balance sheet is strong, and that current ratio “issue” isn’t something to be concerned about in this case.

Valuation Deep Dive: Is UNH Undervalued?

Alright, so now the big question—is UNH a buy right now around $550/share?

Let’s walk through four valuation methods I’ve used to assess this:

1. Graham Valuation Model

• Estimated EPS (2025): $29.73

• Projected Growth Rate: 12%

• Result: Intrinsic Value = $521.50/share

This valuation is a bit conservative, partly due to high bond yields that depress intrinsic value calculations.

2. Discounted Cash Flow (DCF)

• Adjusts for 2024's temporary free cash flow drop

• Assumes 8.5% FCF growth through 2030

• Result: DCF Value = $638.61/share (That’s about 16% upside from current levels)

3. Historic PE Multiple

• 10-Year Avg PE: 22.87

• TTM PE: 33.77 (inflated due to lower earnings from the cyberattack)

• This model looks unfavorable, but it’s misleading unless you normalize earnings

4. Dividend Discount Model (DDM)

• Dividend Growth: 7%

• Discount Rate: 8.5%

• Result: DDM Value = $599.20/share

Valuation Summary

When we average these models together, we get an intrinsic value of about $576/share. With a 10% margin of safety, an attractive buy price would be around $518/share—a level the stock has hit several times over the past year.

Personally, I not adding to my position on those dips.

Conclusion

Why I’m Still Hold on UNH because the tariff uncertainty but for longterm When you put it all together:

• Consistent dividend growth

• Resilient free cash flow

• Attractive valuation

• Positive forward guidance

• Medicare reimbursement tailwind

…this is a company that checks a lot of boxes for long-term dividend investors.

Yes, 2024 threw a curveball with the cyberattack. But the recovery has not begun, and the fundamentals is remain strong. If you’re looking for dividend growth, financial strength, and reliable cash flow, UnitedHealth Group is one to seriously consider for long term not short term.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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