Humana Increases Dividend Despite Challenges

The board of Humana has announced that it will make another dividend payment of $0.885 per share on January 31. This decision corresponds to a typical dividend yield of 1.4%. This measure comes despite Humana's share price having dropped by 36% over the past three months, which has caused the yield to soar. For income investors, a stable dividend is important, but larger price movements often outweigh the stock's valuation. While Humana generates sufficient profits to cover the dividend, strong cash flows are lacking. This deficiency could lead to difficulties in dividend payments in the long term. On the positive side, forecasts for the coming year predict an increase in earnings per share of 62.8%. If this trend materializes, the payout ratio could decrease to 17%, a level considered sustainable. Humana has a reliable history of dividend payments without significant fluctuations, with a notable growth of 13% annually over the past ten years. Despite this impressive dividend history, appearances can sometimes be deceiving. Over the past five years, earnings per share have decreased by about 5% annually. In the long term, this could mean that dividend payments may also need to be reduced. Although revenues appear to be growing over the next 12 months, caution is advised until a consistent upward trend is evident. In summary, while the consistency of the dividend payment is pleasing, its current level may be difficult to maintain. The low payout ratio is positive, but it is offset by the lack of available liquid funds. Overall, Humana is not necessarily to be considered a good income stock, despite the high importance of a consistent dividend policy. Investors should also heed the warning signs we have identified before investing in Humana.