CVS Health; A Dividend Growth Share with medium term high gain potential

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CVS Health; A Dividend Growth Share with medium term high gain potential

Published Date: 2018-04-05 | Source: Share Picks USA | Author: Bruce Ingram | Comments

CVS Health; A Dividend Growth Share with medium term high gain potential

CVS Health together with its subsidiaries, provides integrated pharmacy health care services and also sells general retail merchandise. CVS is one of USA's largest pharmaceutical chains.

To quote from their website:

Since 2015 CVS's sales have declined due to an increasing move towards generic drugs at lower prices. Their share price has also been impacted since Amazon, J.P. Morgan and Berkshire Hathaway announced a partnership to improve employee health early this year.

Towards the end of 2017, CVS announced a merger agreement with America's third largest health care provider Aetna, adding health insurance to its customers if the merger goes ahead. This merger has been overwhelmingly approved by shareholders of both companies. The merger is expected to be complete before the end of 2018.

Here are some facts about CVS

  • Market Cap $63.7 billion
  • Dividend yield 3.21%. Dividend growth last year 18%. Annual dividend growth last 5 years has been 25%. CVS has paid increasing dividends for 14 years
  • The current dividend yield of 3.21% is 105% above its 5-year average. Indicating the company could be undervalued
  • S&P 500 Credit rating is BBB
  • PE ratio currently 9.61x Normal PE ration over the last 10 years 15.4x

CVS investor information can be found here: http://investors.cvshealth.com/

So, what makes CVS worth investigating? Analysts believe CVS is significantly undervalued. The merger with Aetna will provide increased diversification and lower costs to the end-user. By the end of 2019 the share is expected to provide an annual Rate of Return of more than 40%, or more than 13% ROR for the next ten years.

In order to assist with funding the Aetna merger, CVS has frozen dividends at current levels until 2021.

I believe the share is a good investment for the investor who has more than 4 years to retirement and who is not so risk averse. As the dividends have been temporarily frozen this is not a dividend growth investment for someone who is currently relying on growing dividends for income.



Disclaimer: Please note that I am not a Registered Financial Planner. The articles I write are based on my own personal research and for my own use and is not to be construed as financial planning advice. At all times readers are urged to exercise caution when investing in any financial instruments, to do their own research.


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