The health insurance business has grown dramatically in recent years, and Dow component UnitedHealth Group (NYSE: UNH) has led the industry forward through tumultuous times.
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Even as major healthcare reforms challenged healthcare providers, pharmaceutical companies, and insurance giants, UnitedHealth found ways to innovate and keep growing. Yet despite strong share-price appreciation, UnitedHealth hasn't done a stock split for a dozen years, and some shareholders think it's about time for one. With that in mind, let's look more closely at the health insurance company. to see whether this year might put an end to its stock split drought.
Image source: UnitedHealth Group.
UnitedHealth Group stock splits in the past
Here are the dates and split ratios forUnitedHealth's previous stock splits:
Data source: UnitedHealth investor relations.
As you can see, UnitedHealth has done stock splits on several occasions, which makes it fairly easy to go back and see what motivated the company to make those moves. That can give us some clues as to what it's likely to do in the current situation.
Throughout much of the 1980s, UnitedHealth stock traded below the $10 per share mark, and it wasn't until 1989 that the stock broke into double-digit territory for good. The genesis of its pharmacy benefits management business in 1988 marked an important turning point for the company, and by the early 1990s, it helped power a meteoric rise for its shares, sending them almost to $100 before the company did its first stock split in late 1992. From there, the stock quickly gained ground again, which is why the second stock split came just 18 months later, taking a share price in the high $80s and cutting it in half.
From there, UnitedHealth had a longer period of quiet but solid performance. But interestingly, even as tech stocks were going through their boom-and-bust cycle, UnitedHealth gained ground after its 1997 partnership with AARP opened new doors for its insurance business. In 2000, shares went above the $120 mark before the next split. Further gains took the health insurance giant back into triple digits by 2003, spurring yet another stock split.
Finally, in 2005, UnitedHealth stuck with the same playbook. With shares falling just shy of $100, it made its most recent split.
Will UnitedHealth split its shares in 2017?
Since then, however, UnitedHealth has torn out that page of the playbook. Growth has come from several quarters, including the creation of Medicare Part D prescription drug plans and the widespread adoption of Medicare Advantage and Medicaid-tailored coverage options. The company's Optum business has also exploded, with fast growth stemming from game-changing practices to encourage efficiency and health awareness.
After taking a big hit during the financial crisis, UnitedHealth stock regained lost ground and hit the $100 per share mark in late 2014. The Dow component didn't stop there; further gains have taken it to its current $160 level. Smart decisions about targeting the most profitable business lines have been a big part of its success, and strategic acquisitions have also bolstered growth and widened the scope of UnitedHealth's business.
Yet it hasn't even seemed to consider a stock split. The issue didn't come up on recent quarterly conference calls, and it's apparent that UnitedHealth is responding to a changing market climate that has encouraged many companies to let their stock prices rise without regard to their level.
Some believe that UnitedHealth's weighting in the Dow might eventually create pressure for it tosplit its stock. Right now, the health insurance company makes up almost 6% of the index, which is more than the four lowest-weighted Dow components combined. Yet other larger companies have kept their share prices moving higher, so it might be a while before peer pressure pushes UnitedHealth to make a move.
Given how long it has gone without doing a stock split, UnitedHealth investors can't count on 2017 bringing a change to the status quo. But with 30-year average annual returns of more than 24%, investors can't really complain that the company hasn't amply rewarded them -- even without the psychological benefit that splitting its shares might have given them.
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