With the Federal Reserve tightening its monetary policy to combat inflation and equity markets responding with volatility, many investors are seeking companies from defensive sectors with a reputation for being resilient during times of economic weakness.
Companies that operate in industries like health care, utilities, and consumer staples are known to hold up well during economic downturns because their offerings are needed in all phases of the business cycle. But not all stocks from the main defensive sectors are a buy right now. Today, we’re highlighting a ticker that offers reliable earnings and dividend payout backed by a fortified balance sheet.
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Healthcare has been a bright spot lately, which could be attributed to a renewed interest in the sometimes overlooked defensive sector. “The defensive aspects of the sector, while not fully appreciated at times over the past few years, is beginning to kick-in in a rather meaningful way,” said Jared Holz, a healthcare strategist at Oppenheimer.
Traditionally one of the most stable and recession-resistant sectors, everyone needs healthcare at some point regardless of income status. A name offering defensive growth from the desirable sector currently is UnitedHealth Group (UNH). As the most significant health insurance company by market cap and market share, UNH’s size gives it built-in advantages over peers in the group.
UnitedHealth reported double-digit revenue growth for 2021. Full-year revenue was listed at $287.6 billion, up 11.8% year over year. Full-year EPS increased from $16.03 in 2020 to $18.08. The company expects annual 2022 revenue of between $317 and $320 billion, the median of which implies an 11% upside year over year. UNH forecasts 2022 EPS of $20.20 to $20.50.
Momentum should be supported in the coming years thanks to UNH’s strong market position and attractive core business. Its expansion of international business provides substantial diversification benefits and shields against the impact of tightening U.S. regulations while allowing the Dow giant to tap into the $8.3 trillion spent annually on global healthcare.
UnitedHealth has a solid history of rewarding investors with a steady paycheck. The company went to a quarterly dividend in 2010 and, since then, has increased its dividend every year. That includes a 16% bump last year to $1.45 a share, which works out to a yield of 1.10% at its current price. UNH’s payout has increased 31% over the past five years, and the stock has a 5-year annualized dividend growth rate of 17.18%. The stock looks like a value at about 26 times earnings, compared to the healthcare industry, where the average P/E is around 34.
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