Purchase This Undervalued Blue Chip Inventory for Great Dividend Progress

Purchase This Undervalued Blue Chip Inventory for Great Dividend Progress

Dividend development can act as a litmus take a look at for the standard of a enterprise. In any case, an organization can solely develop its dividend over the lengthy haul if its earnings are additionally rising.

The managed care enterprise generally known as Elevance Well being (ELV 0.31%) not too long ago introduced that it could be sending an additional 15.6% in quarterly dividends per share to its shareholders with the subsequent fee. Let’s dig into three the reason why the inventory is a no brainer choose for dividend development traders.

1. Elevance Well being is a frontrunner in a large business

Elevance Well being serves over 119 million prospects by way of its Anthem Blue Cross and Blue Protect Affiliated well being plans and healthcare providers enterprise, known as Carelon. This large buyer base explains how the corporate, with its $113 billion market capitalization, has develop into the second-biggest publicly traded well being insurer on this planet behind UnitedHealth Group.

Exterior of UnitedHealth Group, Elevance Well being would be the largest beneficiary of the medical health insurance business’s favorable tendencies. Due to a mounting international illness burden and the growing use of the web to buy plans, the worldwide medical health insurance market has a number of catalysts going for it within the years forward. That is why market analysis firm Priority Analysis initiatives that the worldwide medical health insurance business will compound at 6.8% yearly from $2.2 trillion in 2022 to $3.8 trillion by 2030.

The typical 2023 income estimate of $164.4 billion might appear to be big in absolute phrases for Elevance Well being. However it’s not even a 7% share of the $2.4 trillion in income that the worldwide medical health insurance market will absorb for the yr. Natural development from elevated demand for medical health insurance coupled with acquisition exercise ought to assist Elevance Well being construct on its market share transferring ahead.

These components are behind the typical annual analyst non-GAAP (adjusted) diluted earnings per share (EPS) development forecast of 12.4% over the subsequent 5 years. For context, that’s much like the healthcare plans business common annual adjusted diluted EPS development consensus of 12.5%.

A customer shops at a pharmacy.

Picture supply: Getty Pictures.

2. Elevance’s outsized dividend development ought to persist

Elevance Well being’s 1.3% dividend yield might not appeal to the eye of earnings traders when in comparison with the S&P 500 index’s 1.7% yield. However it actually ought to for these with longer funding timeframes: Elevance Well being’s quarterly dividend per share has almost quadrupled from $0.375 in 2013 to $1.48 now. With the newest dividend development charge coming in above the 10-year common annual dividend development charge of 14.7%, dividend development seems to be accelerating.

ELV Dividend Chart

ELV Dividend information by YCharts

That is not shocking when contemplating that Elevance Well being’s dividend payout ratio is predicted to come back in at simply 18% in 2023. This leaves the corporate with greater than sufficient funds to spend money on potential development alternatives and cut back debt. I might anticipate extra of the identical for dividend development sooner or later.

3. The inventory is a strong worth

Whereas the broader markets have shed some worth during the last yr, shares of Elevance Well being have edged 4% greater throughout that point. Nonetheless, the inventory stays a purchase for traders looking for excessive dividend development.

Elevance Well being’s ahead price-to-earnings (P/E) ratio of 12.7 is lower than the healthcare plans business common ahead P/E ratio of 13.4. For a number one well being insurer with common development prospects, the inventory ought to arguably be buying and selling at a valuation a number of extra in step with or barely forward of its friends.