Updated 3/10/25

Humana Inc. (NYSE: HUM) is a well-established name in the healthcare industry, specializing in Medicare Advantage plans and other health insurance products. Over the years, the company has built a strong reputation for serving the senior population, leveraging government contracts and partnerships to expand its market reach.

Lately, however, the stock has faced significant downward pressure. Shares have dropped over 25% from their 52-week high, reflecting broader concerns about rising medical costs and potential margin pressures. For dividend investors, this raises an important question—is Humana’s pullback an opportunity or a warning sign? Let’s take a closer look at its dividend profile, financial health, and overall valuation to see if it aligns with a long-term income strategy.

Key Dividend Metrics

💰 Dividend Yield: 1.36%
📈 5-Year Average Dividend Yield: 0.75%
📊 Payout Ratio: 35.47%
🗓 Next Ex-Dividend Date: March 28, 2025
💵 Next Dividend Payment Date: April 25, 2025
📈 Dividend Growth Rate (5-Year Avg.): 12%+

Humana isn’t known for its high yield, but its track record of steady dividend increases makes it appealing for investors focused on long-term income growth. With a payout ratio well below 50%, there’s still plenty of room for future increases.

Dividend Overview

Humana has consistently rewarded shareholders with a growing dividend, even though its yield isn’t particularly high. At 1.36%, it sits below the broader healthcare sector average, but what it lacks in immediate yield, it makes up for in consistent growth.

Over the past five years, Humana’s dividend has expanded at a double-digit annual rate, outpacing inflation and many industry peers. That’s a positive sign for investors who prioritize growth in their income streams. The company’s dividend payments are also well-covered by earnings, with a payout ratio of just 35.47%. This suggests that Humana isn’t overextending itself and has room to continue raising payouts in the future.

For those seeking higher immediate income, Humana might not be the best fit. But for investors with a long-term outlook, the combination of steady dividend increases and share price appreciation could be compelling.

Dividend Growth and Safety

The real strength of Humana’s dividend lies in its growth potential. Management has shown a commitment to returning capital to shareholders, and with such a low payout ratio, there’s little risk of a dividend cut.

Growth Potential

• A 12%+ average annual dividend increase is well above inflation and industry norms.
• A low payout ratio leaves room for continued increases.
• The company is seeing consistent revenue growth, up 10.4% year-over-year.

Safety Considerations

• With a payout ratio of just 35.47%, there’s little risk of overextension.
• The company holds over $20 billion in cash, providing a strong financial cushion.
• The current ratio of 1.76 suggests Humana has plenty of liquidity to meet short-term obligations.

While dividend safety looks strong overall, one concern is that Humana’s net profit margin is just 1.02%, and operating margins have dipped into negative territory. This doesn’t necessarily threaten the dividend in the short term, but if profitability remains under pressure, future dividend growth could slow.

Chart Analysis

The stock chart for Humana (HUM) is showing a prolonged downtrend with a few key technical signals that suggest it is struggling to find strong upward momentum. The combination of moving averages, volume trends, and relative strength index (RSI) readings all point to a market that remains under pressure, though some signs of stabilization are appearing.

Moving Averages

The 50-day simple moving average (SMA) has been moving below the 200-day SMA for a significant period, reinforcing the overall bearish trend. The price has made multiple attempts to break above the 50-day SMA but has been unable to sustain any meaningful move beyond it. The 200-day SMA is continuing to slope downward, suggesting that longer-term sentiment remains negative.

Recent price action shows the stock attempting to base out near the $250 level, but it has not been able to reclaim the 50-day moving average with conviction. Until the stock establishes a clear breakout above this level, short-term traders may remain hesitant.

Price Action and Support Levels

The chart reveals a pattern of lower highs and lower lows, which is typical of a stock in a downtrend. There was a sharp drop in October, likely on significant news or earnings, followed by a period of choppy trading. While there have been attempts to recover, the stock has struggled to hold gains.

The most recent price action shows the stock closing at $259.76, just below where the 50-day SMA is hovering. This suggests that it is still battling resistance, and unless there is a strong push higher with above-average volume, further sideways movement or another leg lower could be in play.

The key support level appears to be in the $250 range, where the stock has bounced multiple times. A decisive break below this level could invite further selling pressure.

Volume and Market Participation

Volume spikes have been noticeable, particularly in October when there was a major increase in trading activity. This could indicate institutional selling at that time, contributing to the steep drop. Since then, volume has tapered off, with some occasional buying activity but nothing indicating strong accumulation.

The lack of sustained high-volume buying suggests that larger investors are not aggressively stepping in at this level. For any meaningful trend reversal, there would need to be a clear uptick in buying volume supporting price advances.

Relative Strength Index (RSI)

The RSI indicator is currently in a neutral range, neither in oversold nor overbought territory. This suggests that the stock is in a consolidation phase, lacking strong momentum in either direction. The RSI was previously in oversold conditions during the October decline, but since then, it has been gradually recovering.

Without a strong move above resistance, the RSI may continue to hover in this middle range, reflecting indecision in the market. If the stock starts to gain traction above its short-term resistance, the RSI could push higher, indicating increasing bullish momentum.

Analyst Ratings

💡 Humana Inc. (HUM) has recently seen a mix of analyst rating changes, reflecting both optimism and caution in the market. The consensus 12-month price target is around $309.32, suggesting some potential upside from current levels.

📉 Downgrades:
🔻 On October 2, an analyst at a major firm downgraded Humana from Neutral to Underperform, citing concerns about rising medical costs and profitability pressures.
🔻 On October 3, another analyst shifted their rating from Overweight to Neutral, pointing to regulatory uncertainties in the healthcare sector.
🔻 On October 7, a different firm moved its rating from Buy to Hold, reflecting a more cautious stance amid market volatility.

📈 Upgrades:
🔺 On October 8, an analyst upgraded Humana from Market Perform to Outperform, expressing confidence in the company’s ability to navigate cost pressures and stabilize earnings.
🔺 Another firm maintained a positive long-term outlook, highlighting Humana’s strong cash position and continued Medicare Advantage growth.

These mixed ratings show that while some analysts are concerned about short-term risks, others see long-term potential in Humana’s business model. The recent price action suggests that investors are weighing both perspectives carefully.

Earnings Report Summary

Humana’s latest earnings report painted a mixed picture, with some positive signs but also a few challenges that investors will want to keep an eye on. The company posted a net loss of $862 million for the fourth quarter of 2024, which works out to about $5.76 per share. That’s a big jump from the previous year’s loss of just $15 million, or $0.11 per share.

On the bright side, revenue continued to grow, climbing 10% year over year to hit $29.21 billion, up from $26.56 billion in the same quarter last year. That shows that Humana is still bringing in strong top-line numbers, even as it works through some cost pressures.

One of the more concerning aspects of the report was the adjusted earnings per share, which came in at a loss of $2.16. That was mostly in line with what analysts were expecting, but for the full year, the company posted adjusted earnings of $16.21 per share—just slightly below estimates of $16.25.

Looking ahead, one of the biggest headwinds for Humana is the expected decline in individual Medicare Advantage membership for 2025. The company is projecting a 10% drop, which is partly tied to a lower quality rating for one of its major plans by the Centers for Medicare & Medicaid Services. That downgrade is going to hit reimbursement rates, which could put some pressure on margins going forward.

Humana’s leadership isn’t sitting still, though. Executives made it clear that 2025 is going to be a year focused on recovering margins and stabilizing its Medicare Advantage business. The company plans to invest heavily in various areas to get profitability back on track and keep long-term growth intact.

Even with the earnings miss and expected membership decline, there are still reasons to be optimistic. The revenue growth shows that demand remains strong, and if Humana’s cost-cutting and strategic investments pay off, they could come out of this rough patch in a stronger position. For now, the focus will be on execution and whether the company can deliver on its recovery plan.

Financial Health and Stability

Despite recent stock declines, Humana remains financially solid. The company has built a strong balance sheet with more than $20 billion in cash, which should provide stability even in tougher market conditions.

Strengths

✔ Strong revenue growth, up 10.4% year-over-year.
✔ Large cash reserves give the company financial flexibility.
✔ Institutional investors own nearly 98% of the stock, signaling confidence.

Weaknesses

❌ Margins have tightened, which could limit profitability in the near term.
❌ Levered free cash flow is negative at -$1.31 billion, a potential red flag for aggressive dividend growth.

Debt levels are worth keeping an eye on, with a debt-to-equity ratio of 76.9%. While not alarming, it does suggest Humana is using a fair amount of leverage. The key takeaway here is that while the company has plenty of cash on hand, improving profitability will be crucial to maintaining both dividends and future growth investments.

Valuation and Stock Performance

Humana’s stock has taken a significant hit, now trading at a forward P/E of 15.77, which is lower than historical levels. While concerns about rising medical costs are weighing on investor sentiment, this could present an opportunity for those with a long-term perspective.

Valuation Metrics

• Price-to-Earnings (Forward): 15.77 (historically low for Humana)
• Price-to-Sales: 0.27 (near multi-year lows)
• Price-to-Book: 1.91 (well below long-term averages)

From a valuation standpoint, Humana appears undervalued based on historical trends. The market is pricing in concerns over cost pressures, but for investors willing to ride out short-term headwinds, these levels may offer an attractive entry point.

Another positive sign is Humana’s low beta of 0.58, meaning it’s generally less volatile than the broader market. While that doesn’t eliminate all risks, it does suggest that Humana tends to hold up better during broader market downturns.

Risks and Considerations

Like any investment, Humana comes with its fair share of risks.

1️⃣ Rising Medical Costs – As healthcare costs climb, Humana’s ability to maintain profit margins could be squeezed, impacting earnings growth and future dividend increases.

2️⃣ Regulatory Uncertainty – The company’s heavy reliance on Medicare Advantage means any government policy changes could have a major impact.

3️⃣ Competitive Pressure – Humana faces stiff competition from industry giants like UnitedHealth Group and CVS Health. Staying ahead in the managed healthcare space requires constant innovation and cost management.

4️⃣ Profitability Concerns – Operating margins have turned negative, and cash flow challenges need to be watched closely.

5️⃣ Stock Volatility – While the company has a relatively low beta, the recent stock decline has shown that it’s not immune to sharp moves based on industry trends.

Final Thoughts

Humana presents an interesting case for dividend investors. The current yield may not turn heads, but the company’s strong dividend growth, low payout ratio, and solid financial standing make it an appealing option for those focused on long-term income appreciation.

The recent pullback in the stock could provide an opportunity, though concerns about rising medical costs and declining profitability should not be ignored. Investors comfortable with short-term volatility might find Humana an attractive long-term play, but those looking for a higher immediate yield may want to explore other options.

For dividend investors who prioritize growth over yield, Humana remains a name worth watching.