Cardinal Health (CAH) Dividend Stock Analysis
Cardinal Health Dividend
The Cardinal Health (CAH) dividend has been paid since 1983 and increased for 31 consecutive years;
qualifying the company as a Dividend Aristocrat.
Current Annual Dividend: $1.8496
Dividend Yield: 2.4%
Cash Dividend Payout Ratio: 89%
Market Capitalization: 24 B
Enterprise Value: 28 B
Sector: Health Care
Industry: Medical Distribution
Cardinal Health (CAH) is a healthcare and medical products distributor to 20,000 Pharmacies, 5000 pharmaceutical and medical suppliers, and 1.8 million home healthcare patients. The company manufactures or sources more than 2.5 billion individual consumer healthcare, home medical equipment, and over-the-counter products.
With close to 35,000 employees you might say Cardinal Health is the “everywhere” healthcare company. From the company annual report: “Cardinal Health helps customers reduce costs, increase efficiency, and improve quality, outcomes and access. From hospitals to home and everywhere in between, we serve the entire continuum of care with logistics, business, product and patient solutions”.
Dividend Analyzer Checklist
(updated July 2017)
Dividend Safety Score (14/33 points)
Dividend Per Share (ttm): $1.80
Dividend Payout Ratio (ttm): 42%
Dividend Per Share (10 Year Growth): 20%
Cash From Operations (CFO) Per Share (ttm): $3.42
CFO Dividend Coverage (CFO / DPS): 1.9 (0/6 points)
Free Cash Flow (FCF) Per Share (ttm): $1.95
FCF Dividend Coverage (FCF / DPS): 1.1 (1/6 points)
Net Financial Debt: $4093
Total Assets: $34174
Net Financial Debt / Total Assets: 12% (9/12 points)
Net Financial Debt to EBITDA (ttm): 183%
Total Liabilities to Assets Ratio (Qtr.): 81%
Piotroski Score (1-9) (TTM): (4/9 points)
Profitability & Growth Score (17/33 points)
Revenue (10 Year Growth) *CAGR > 4.14%: 4.3% (4/4 points)
EPS Basic Cont. Operations (10 Year Growth) CAGR > 4.14%: 4.7% (4/4 points)
Cash From Operations (10 Year Growth) CAGR > 4.14%: 3.4% (0/6 points)
Operating Earnings Yield (ttm): 9.3% (5/7 points)
Net Income (ttm): $1346
Gross Profit (ttm): $6586
Total Assets: $34174
Gross Profitability Ratio = GP / Total Assets: 19% (4/12 points)
Cash Return On Invested Capital (CROIC)(tttm): 5%
Return on Invested Capital (ROIC): 11%
Return on Invested Capital (ROIC) (5 Year Median): 11%
Return on Invested Capital (ROIC) (10 Year Median): 11%
Valuation Score (19/34 points)
Free Cash Flow Yield (ttm): 2.5% (4/9 points)
EV to EBIT (ttm): 12.4 (6/9 points)
EV to EBITDA (ttm): 9.5 (6/9 points)
PE10: 25.2 (3/7 points)
Price to Sales Ratio (ttm): 0.2
Price to Book Value (ttm): 3.8
Price to Earnings Ratio (P/E) (ttm): 18.9
TOTAL POINTS – (50/100) (50 is an average score)
*Compound Annual Growth Rate (CAGR)
**A Compound Annual Growth Rate of 4.14% = a 50% gain over 10 years.
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The massive $300 billion retail pharmaceutical business is only going to grow for the foreseeable future. Distribution operations are controlled by three companies (Cardinal Health, AmerisourceBergen, and McKesson) with 90% market share.
CAH competitive advantages include economies of scale, being a low cost provider (deep pricing discounts from drug manufacturers), and barriers to entry (enormous distribution system).
The healthcare industry is extremely dynamic. Pressure to lower costs are coming from government, suppliers, retailers, and consumers. Regulations (including increased transparency) and procedures are in constant flux.
This is a business with ultra thin margins. While this keeps new competitors from entering the medical distribution industry, it leaves no room for error or unforeseen changes that disrupt profits.
The 10 years agreement with CVS Caremark to combine generic sourcing operations is an example of how CAH can use its size and expertise to lock in business. Partnerships offer opportunities to improve profit margins and provide lower costs to consumers.
Large contracts tie large percentages of business to one customer. Contracts lost with Walgreens in 2013 and Express Script in 2012 had a significant impact on business operations. CVS health currently represents over 40% of CAH sales.
(updated July 2017)
Cardinal Health (CAH) is ranked #100 (out of 251) overall and #8 (out of 16) in the Healthcare sector by the Dividend Analyzer. CAH is an average investment.
Portfolio Position Disclosures:
DVB Foundation Portfolio – None
DVB Dividend Growth – None
DVB High Income – None
Arbor Asset Allocation Model Portfolio (AAAMP) – None
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