This dividend stock recently raised its forecast and is near its 52-week high. Is it a purchase?

Stocks were beaten in 2022, and the S&P500 is down 17% since the start of the year. Given the current environment, it’s hard to find stocks that haven’t been reversed.

However, some stocks can perform well even in this market. In particular, valuing the actions and dividend stocks haven’t seen nearly the declines that their growth stock counterparts are experiencing.

Data by YCharts.

One dividend-paying stock that has posted strong earnings and impressed investors with its predictions is the group insurance company Unum Group (NYSE:UNM). While the company struggled when the pandemic started in 2020, things are starting to look up for the company.

The pandemic has caused major headwinds for Unum in 2020

Unum Group offers life insurance along with other benefits such as dental and vision coverage primarily to employer networks.

Two people look at a paper held by a professional.

Image source: Getty Images.

The emergence of the global pandemic in 2020 has hurt Unum Group’s earnings in various ways. The unemployment rate in the United States reached 14% at the start of the pandemic and falling employment levels led to slower premium growth for Unum Group. The company has also faced higher payouts due to the pandemic, as the elderly have been hit the hardest by the pandemic. Finally, low interest rates have been a headwind for the insurer, which has struggled to generate much interest income from its holdings.

Unum turn the corner now

The workforce has largely recovered since then and Unum Group delivered a strong quarter of profits in the first quarter of 2022. The insurer saw its premium income increase by 1% compared to the same quarter of the ‘last year. More importantly, Unum saw its first-quarter adjusted operating profit increase 31% year-over-year.

What made investors optimistic was the management updated tips for 2022. Unum expects adjusted operating earnings per share to grow 15% to 20% for the year. This is a significant increase from its previous growth forecast of 4% to 7%. The increase in forecasts made investors optimistic and the day after the earnings release, Unum Group’s share price jumped almost 14%.

Headwinds have become tailwinds that can work in favor of Unum

What works in Unum Group’s favor is a reversal of the issues that plagued it when the pandemic first emerged. CEO Richard McKenney commented on how “the current business environment is favorable for our business, with higher interest rates and a strong labor market, which is translating into an improved earnings outlook” .

Going forward, Unum executives expect premium growth to remain solid and COVID-19-related claims to decline. Lower unemployment rates mean more employees in the workforce, which would increase the amount companies will pay for benefits – which is great for Unum Group.

A graph shows the unemployment rate over 30 years.

Image source: Federal Reserve Economic Data.

The company also expects to see its earnings ratio fall. The benefit rate is a key metric for insurers like Unum Group. This indicator measures the ratio of claims paid to total premiums collected from customers.

Unum’s group life insurance benefit ratio peaked at around 96% in 2021 (the lower the ratio, the better). The insurer expects this ratio to improve to 80% to 85% this year and settle in its historical range of 70% to 75% in the coming years.

A chart shows the Unum Group life and accidental death and dismemberment benefit ratio.

Image source: Unum Group.

A solid balance will also help

Another thing that works in Unum Group’s favor is its strong balance sheet. The company currently has $1.3 billion in cash and available assets and is 25% leveraged, its lowest level since 2014.

This strong capital position allows the insurer to work cash into higher interest assets and return cash to shareholders through share buybacks and dividends.

Unum’s board has approved $200 million in share buybacks per year, and the dividend is earning investors a solid 3.5%. The company is trading at a cheap valuation with a price-earnings ratio of just 7.5. This company has tailwinds for its business, making it a solid stock you can add as part of a diversified portfolio.

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Courtney Carlsen has no position in the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Dividend Appreciation ETF, Vanguard Growth ETF and Vanguard Value ETF. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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