Actionable news
All posts from Actionable news

CVS Health Corporation: Attractively Valued And Set Up For Double Digit Returns


CVS Health Corporation is a Dividend Contender with 13 consecutive years of dividend growth.

CVS Health Corporation is fairly valued and trading at an attractive valuation with double digit return potential.

Dividend growth should continue in the mid teen to low twenty percent range on an annual basis for the foreseeable future.

Shares of CVS Health Corporation are currently trading around $87.20 giving investors a current yield of 1.95%.

Since I began investing in earnest back in 2011 one company that I've had my eye on has been CVS Health Corporation (NYSE:CVS). However, for some reason or another the stars never aligned to where I had ample cash and shares of CVS were trading at a good valuation.

That's starting to change now though as CVS has severely lagged the S&P 500 this year and especially since May. Year to date the S&P 500 has climbed higher by 4.6% while CVS has declined over 16%.

CVS data by YCharts

Some investors might be concerned to see that kind of underperformance; however, value investors should start getting interested. CVS' underwhelming share price this year has been largely due to the valuation coming back in check rather than something fundamentally wrong with the business.

CVS Normalized PE Ratio (NYSE:TTM) data by YCharts

Let's see what the numbers say regarding the quality of CVS Health Corporation as a dividend growth investment.

Dividend History

For starters a dividend growth investment must do two things: pay AND grow the dividend payment. I primarily invest in companies that have paid and grown dividends since at least the last economic malady which would be 2007-2009. Companies that continued to pay and grow their dividend during that time have a high likelihood of having a strong competitive advantage that will allow them to continue growing the dividend payment in the future.

CVS Health Corporation has increased dividends for 13 consecutive years giving them the title of Dividend Contender. That said, CVS has paid the same or higher dividends since 1997 with a 4 year pause in dividend growth from 2000-2003. Even better is that based on the recent past investors can expect a raise to be announced in December.

*Image source: Author. Data Source: CVS Investor Relations.

*Image source: Author. Data Source: CVS Investor Relations.

**An interactive version of this chart can be found here.

CVS has in fact grown the dividend every year starting in 2004. Even better though is the very generous raises that CVS' management has given to shareholders.

*Image source: Author. Data source: CVS Investor Relations.

**An interactive, graphical version of this table can be found here.

CVS' streak might not be as long as other companies; however, the pace of growth is truly impressive. Every year since 2007 the one year dividend growth rate has been greater than 10%.

It's All In The Numbers

Judging the quality of a company is a very subjective task. Some look at credit ratings, some try to gauge the management, others focus on the business model. The strength of a business model shows up in the numbers that they report.

I prefer to take a cash flow oriented approach in analyzing the numbers since the income statement can be hit with various non-cash charges and frankly, it can be adjusted a bit more than cash flow.

CVS has done an excellent job growing revenue over the last decade and has increased it 4-fold between 2005 and...