As a dividend paying stock, Aetna (NYSE: AET
) needs to follow the lead of Microsoft (NASDAQ: MSFT
) and Intel (NASDAQ: INTC
) and reward its shareholders. For too long, high tech companies such as Intel and Microsoft thought that cash was better used for research and development, or mergers and acquisitions rather than providing shareholders with a healthy dividend income. Now, Microsoft and Intel both pay dividends above the average yield of around 2% for a stock on the Standard & Poor's 500.
Not Aetna. Aetna provides its shareholders, both institutions and individuals, with a dividend income of 1.85%. The payout ratio for Aetna is only 12.18%. Historically, the payout ratio for a dividend paying stock has been around 50%. Obviously, Aetna has the cash flow to raise the dividend income and continue dividend growth into the future. By contrast, the dividend income from Microsoft is around 2.50%. As a dividend paying stock, Intel provides it shareholders with dividend income of 3.35.
Aetna needs to do something to make its stock more attractive. Year to date, the share price is down by 9.58%. Recent action has been painful for shareholders. Over the last month of market action, Aetna is off by 9.32%. The last week of trading has witnessed another 9.32% fall. For the most recent quarter, Aetna is down 23.45%.
Aetna has a strong cash flow. In addition, earnings-per-share growth this year is up by more than 25%. For the next year and the next five years, it is expected to rise in double digits. The price-to-earnings (PE) ratio is around 7. The PE ratio is projected to remain that enticingly low. Very bullish also for Aetna is the price-to-earnings growth (PEG) ratio of 0.67. A PEG of 1 is considered to be adequate. Aetna's PEG of 0.67 is very healthy, indeed.
Now trading around $37.85 a share, the mean analyst target price for Aetna over the next year is $49.88. The high level of institutional ownership at more than 90% is certainly bullish. The low short float at only 1.39% is also a positive indicator. Raising the dividend income would make Aetna more attractive as a dividend paying stock. Pledging to future dividend growth would make it even more appealing.