CVS Health (CVS) Dividend Stock Analysis
CVS Health Dividend
The CVS Health dividend has been paid continuously since 1993 and increased for 14 consecutive years;
qualifying the company as a Dividend Contender.
Current Dividend: $2.00
Dividend Yield: 2.6%
Cash Dividend Payout Ratio: 21%
Market Capitalization: 79 B
Enterprise Value: 105 B
Industry: Healthcare Plans
CVS Health is a “pharmacy innovation company with a simple and clear purpose: helping people on their path to better health.” CVS is a vertically integrated company that describes four segments in which it provides health care services:
CVS Pharmacy retail stores have offered products and services needed for better health for more than 50 years. In addition to prescriptions the stores offer vitamins, skin care, make-up & hair, health and medicine, personal care, home health care products, and general merchandise products..
CVS Caremark is the prescription benefit management subsidiary of CVS Health. This service processes prescription claims by acting as the agent between health plans and retail customers.
With over 1,100 locations and growing, CVS MinuteClinic offers convenient quality health care within CVS stores. A variety of services are offered by nurse practitioners including diagnosing illnesses and injuries and providing wellness services such as vaccinations, physicals, screening, and chronic condition monitoring.
This segment helps customers with rare or complex conditions. Services include home services, prescription refills and delivery, and professionals trained in these special conditions.
Through strategic mergers and acquisitions CVS has evolved into one of the largest pharmacy retailers and a top-tier Prescription Benefit Manager (PBM). The company has significant competitive advantages because of its size.
CVS and Walgreen’s operate as a duopoly. Economies of scale and pricing power give CVS unmatched advantages. Demographics and trends in medicine (i.e. increased insurance coverage) provide powerful drivers for continued growth.
Pricing pressure can come from above and below in a vertically integrated company. Consolidation among drug suppliers could chip away at CVS pricing power. PBM members may demand more pharmacy choices which can chip away at CVS profits.
No company has done a better job of growing through acquisitions than CVS (i.e. Target’s pharmacies, Omnicare, Long Drugs’ Stores, Minute Clinic, etc.).
Walgreens is a formidable competitor with many of the same competitive advantages as CVS. However, both companies must deal with increased competition from retailers and mass grocers in non-pharmaceutical products. In addition changes in insurance (i.e. Medicare, Medicaid, and Obamacare) bring uncertainty.
Dividend Analyzer Checklist
(updated June 2017)
Dividend Safety Score (21/33 points)
Dividend Per Share (ttm): $1.78
Dividend Payout Ratio (ttm): 37%
Dividend Per Share (10 Year Growth): 27%
Cash From Operations (CFO) Per Share (ttm): $10.50
CFO Dividend Coverage (CFO / DPS): 5.9 (6/6 points)
Free Cash Flow (FCF) Per Share (ttm): $8.54
FCF Dividend Coverage (FCF / DPS): 4.8 (6/6 points)
Net Financial Debt: $25131 M
Total Assets: $92670 m
Net Financial Debt / Total Assets: 27% (5/12 points)
Net Financial Debt to EBITDA (ttm): 234%
Total Liabilities to Assets Ratio (Qtr.): 63%
Piotroski Score (1-9) (TTM): (4/9 points)
Profitability & Growth Score (28/33 points)
Revenue (10 Year Growth) *CAGR > 4.14%: 15.0% (4/4 points)
EPS Basic Cont. Operations (10 Year Growth) CAGR > 4.14%: 11.6% (4/4 points)
Cash From Operations (10 Year Growth) CAGR > 4.14%: 19.2% (6/6 points)
Operating Earnings Yield (ttm): 12.2% (7/7 points)
Net Income (ttm): $5123 M
Gross Profit (ttm): $28693 M
Total Assets: $92670 M
Gross Profitability Ratio = GP / Total Assets: 31% (7/12 points)
Cash Return On Invested Capital (CROIC)(tttm): 14%
Return on Invested Capital (ROIC): 8%
Return on Invested Capital (ROIC) (5 Year Median): 9%
Return on Invested Capital (ROIC) (10 Year Median): 8%
Valuation Score (25/34 points)
Free Cash Flow Yield (ttm): 11.1% (9/9 points)
EV to EBIT (ttm): 11.1 (6/9 points)
EV to EBITDA (ttm): 8.8 (6/9 points)
PE10: 24.4 (4/7 points)
Price to Sales Ratio (ttm): 0.5
Price to Book Value (ttm): 2.3
Price to Earnings Ratio (P/E) (ttm): 15.9
TOTAL POINTS – (74/100) (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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(updated June 2017)
CVS Health is ranked #11 (out of 252) overall and #2 (out of 13) in the Healthcare sector by the Dividend Analyzer.
Walgreen’s or CVS Health? For investors trying to decide between the two its basically a toss-up. If your portfolio needs more healthcare I would favor CVS. If your portfolio needs more of tilt toward consumer products I would favor WBA.
Type of Investor / Recommendation
Large Diversified Dividend Portfolios / Should Be Considered
Looking For Exposure to Healthcare Sector / Should Be Considered
Deep Value Investors / Should Be Considered
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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