LOUISVILLE, Ky. (Reuters)—Humana Inc. will start paying a dividend and boost its share repurchase program, and the health insurer said first-quarter earnings would be well above its previous forecast, sending its shares up as much as 7%.

Humana, a large provider of Medicare plans for the elderly, also raised its full-year profit outlook and said it was realigning its business segments to underscore its focus on consumers and provide more transparency in its operations.

Humana's bullish news comes after industry bellwether UnitedHealth Group Inc. last week reported quarterly profit that soared past estimates and lifted its full-year profit view.

Humana's commitment to give more cash back to shareholders signaled confidence in its prospects even as the U.S. government seeks to rein in payments to private Medicare plans, on which Humana heavily relies.

Humana said it expects first-quarter earnings of $1.86 per share, ahead of its previous forecast of $1.15 to $1.20.

The company cited the positive impact of recognizing reserves for medical claims from prior periods, but otherwise gave few details about the quarter. It is due to report quarterly results on May 2.

Jefferies & Co. analyst David Windley said Humana was likely benefiting from continued low use of medical services by Americans wary of spending in the shaky economy, a trend that helped the companies' results throughout 2010. UnitedHealth also cited such low utilization as a factor helping its first-quarter results.

Humana increased its forecast for full-year profit to a range of $6.70 to $6.90 per share, up from $5.95 to $6.15.

Humana said its board approved a quarterly cash dividend policy and set a payout of 25 cents per share, payable July 28. On an annual basis, the payout represents a yield of nearly 1.4% based on Monday's closing stock price.

That compares with yields of 1% for UnitedHealth, 1.4% for WellPoint Inc. and 1.5% for Aetna Inc. All three companies recently instituted a payout or significantly increased the dividend.

Humana's board also authorized share repurchases of up to $1 billion by June 2013, replacing its previous plans of up to $250 million.

The initiation of a dividend appears to be an about-face for Humana. In March, CEO Mike McCallister told Reuters that moves to start dividends "tend to be the behaviors of nongrowth companies. I still consider us a pretty significant growth company."

Mr. McCallister said then the company may need its cash for strategic reasons. But its decision to commit more cash to dividends and buyouts may limit Humana's ability to make acquisitions. The company recently completed its $790 million purchase of clinic operator Concentra, a deal that led the company into the business of providing care.

"It does seem at least to be a signal that they are going to pursue direct physician ownership at a measured pace," Mr. Windley said. "It reduces their dry powder."

The Louisville, Ky.-based company said it will begin managing and reporting its operating results using three segments—Retail, Employer Group, and Health and Well-Being Services—plus another grouping for other businesses.

Humana shares were up 5.3% at $76.54 on Tuesday morning on the New York Stock Exchange, off an earlier high at $77.88.