Humana Inc. gave investors more signs that some insurers will be able to handle the health care overhaul's latest restrictions when it announced a new quarterly dividend and better-than-expected first-quarter results on Tuesday.
The Louisville, Ky., health insurer said it will start offering a 25-cent quarterly cash dividend this summer, and it earned $1.86 per share in 2011's first quarter. The performance topped Humana's previous forecast of $1.15 to $1.20 per share and came in much higher than Wall Street expectations.
Analysts surveyed by FactSet had expected, on average, earnings per share of $1.26 for the first quarter.
Humana also hiked its full-year earnings forecast to a range of $6.70 to $6.90 per share from $5.95 to $6.15 per share. Analysts expected $6.29 for the year.
Shares of Humana, which will release more details on its first-quarter performance Monday, climbed about 5 percent, or $3.59, to $76.27 in afternoon trading.
Health insurance stocks have bounced up and down in recent years, as the sector struggled with a bad economy and investors worried about the overhaul, which aims to cover millions of uninsured people but also imposes new restrictions on the industry.
Insurers entered 2011 facing a new rule that essentially requires them to pay out a minimum percentage of premiums on medical claims or issue rebates to consumers. Investors were concerned that the requirement for that measure, known as a medical-loss ratio, would lower profits. But Humana's announcement Tuesday followed UnitedHealth Group's report last week of better-than-expected first-quarter earnings.
"Clearly it didn't lower (earnings) a whole heck of a lot," BMO Capital analyst Dave Shove said, adding that Humana won't take as big of a hit from that rule as some of its competitors because it has a big Medicare Advantage business.
Minimum medical-loss ratios for Medicare Advantage plans, which are privately run versions of the government's Medicare program, don't start until 2014.
Aside from Medicare Advantage, Humana also offers Medicaid and commercial coverage and insurance for military members and their families.
The company will spend about $42.5 million per quarter on its new dividend, its first since 1993, which will be payable July 28 to shareholders of record on June 30. It also said Tuesday its board is replacing its share repurchase authorization of up to $250 million with an authorization for repurchases of up to $1 billion by June 30, 2013.
Both the dividend and buyback increase represent big shifts from how Humana has typically operated, Citi Investment Research analyst Carl McDonald said in a note. He said he suspects Humana did both in part because it couldn't find big acquisitions to target with its cash.
Humana became the fourth large health insurer to announce a new or larger dividend payment in the past year. In February, WellPoint Inc. also said it would start offering a quarterly cash dividend of 25 cents per share. WellPoint, which runs Blue Cross Blue Shield plans in several states, is the largest health insurer based on membership.
Big health insurers used to offer at most token annual dividends amounting to only a few cents. But that started changing last May when UnitedHealth Group Inc. _ the largest health insurer based on revenue _ said it would start paying a quarterly dividend of 12.5 cents per share.
Aetna Inc. then announced a 15 cent quarterly dividend in February, before WellPoint's announcement.
Stronger financial performances have given insurers a growing supply of cash to spend after stocking the reserves they need to keep for claims.