WellPoint board declares initial 25-cent dividend

[February 23, 2011]  INDIANAPOLIS (AP) -- WellPoint Inc. said Wednesday that its board of directors declared an initial dividend of 25 cents, citing its capital position a month after topping Wall Street's earnings expectations and becoming the latest health insurer to make a payout.

Big health insurers normally offer token dividends like the 4-cent annual one Aetna Inc. paid last November. But that started to change last year when UnitedHealth Group Inc. -- the largest health insurer based on revenue -- announced a quarterly dividend of 12.5 cents per share.

Aetna said earlier this month it will now pay a 15-cent quarterly dividend on April 29 to shareholders as of April 14.

WellPoint said its dividend is payable March 25 to shareholders of record as of March 10. The board also boosted the company's stock buyback authorization to $1.6 billion in 2011.

The steady cash flow from larger dividends can make a company's stock more attractive to investors. This is especially true in the managed care sector, where investors have worried about how companies will be affected by the massive health care overhaul, which aims to cover millions of people but imposes a host of new taxes and restrictions on insurers.

"If you're providing dividends, it says maybe things are not as bad as you thought they were in terms of the new health care law," said Robert Laszewski, a former insurance executive who's now a consultant

Health insurers are coming off strong performances in recent quarters. Many have reported large profit gains helped in part by better pricing of their products and a slowdown in health care use.

In January, WellPoint reported fourth-quarter results above Wall Street expectations, mainly on a decline in health care use. Meanwhile, the company reaffirmed 2011 earnings expectations of $6.30 per share, which was originally below Wall Street forecasts.

The stronger financial performances have given insurers a growing supply of cash to spend, and dividends are an option for that money, especially when there are few prospective acquisitions out there for big companies to make, Laszewski said.

One option they won't take is using that excess cash to reduce premiums, the consultant said. Some insurers, including WellPoint, took heavy criticism for jacking premiums in individual insurance markets last year while reporting rich profits.

Using cash to lower premiums would be a temporary solution that does nothing to solve the underlying problem of spiraling care costs, Laszewski said. It also would put off rate increases for a year, when they would compound and create an even bigger headache.

"Subsidizing these rates for one year would really be a stupid thing to do because you only create a much bigger problem for consumers and regulators in two years and therefore (insurers)," he said.

Of the five largest health insurers, only Cigna Corp. and Humana Inc. do not offer dividends.

[Associated Press]

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