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A Look at Aetna’s Dividend Yield Path

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Revenue and EPS performance

Aetna (AET) recorded a 5.0% rise in revenue in 2016 and a 4.0% rise in 2015. Healthcare premiums and revenues and group insurance premiums and revenues drove the growth. However, group insurance revenues fell in 2015. Large case pension premiums recovered some in 2016 after falling in 2015. Large case pension revenues fell in 2016 after flat growth in 2015. Healthcare drove the 3.0% fall in the first half of 2017, offset by group insurance and large case pensions.

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Aetna’s EPS (earnings per share) fell 6.0% in 2016 after a 19.4% growth in 2015. Revenue growth drove the 2015 performance despite higher operating and interest expenses. Share buybacks further enhanced the company’s EPS. EPS for 2016 appears weaker compared to 2015 and has been weighed down by factors such as higher operating and interest expenses. A fall in revenues, higher operating and interest expenses, and a loss on debt extinguishment offset by share buybacks translated to a 44.0% fall in EPS in the first half of 2017. The company has maintained and increased its free cash flow balance over the years.

Dividend trajectory

Aetna noted a flat downward sloping dividend yield curve between 2015 and 2016 due to a constant dividend per share, offset by price gains. It had an upward sloping dividend yield curve between 2016 and 2017, driven by dividend growth and offset by price gains.

The company has a dividend yield of 1.2%, and its prices have risen 27.6% on a YTD (year-to-date) basis. That compares to a dividend yield of 2.3% and a YTD price gain of 15.2% for the Dow Jones Industrial Average (DJIA-INDEX) (DIA). The S&P 500 (SPX-INDEX) (SPY) has a dividend yield of 2.3% and a YTD price gain of 13.6%. The Nasdaq Composite (COMP-INDEX) (ONEQ) has a YTD price gain of 22.2%.

The First Trust NASDAQ Rising Dividend Achievers ETF (RDVY) is a dividend ETF with exposure to Aetna. The ETF has a 1.2% dividend yield and a PE (price-to-earnings) ratio of 15.7x. The WisdomTree US Dividend Growth ETF (DGRW) is a dividend ETF with exposure to Aetna. The ETF offers a 2.9% dividend yield and a PE ratio of 20.3x.

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