Last update on 2024-06-27

CVS Health (CVS) - Dividend Analysis (Final Score: 7/8)

Comprehensive CVS Health (CVS) dividend analysis with a final score of 7/8, evaluating dividend yield, growth rate, payout ratio, earnings coverage, and cash flow sustainability.

Short Analysis - Dividend Score: 7

We're running CVS Health (CVS) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield measures how much a company pays in dividends relative to its stock price. A higher dividend yield is attractive to income-focused investors as it implies a higher return on investment through dividends.

CVS Health's dividend yield of 3.0648% surpasses the industry average of 0.87%, showcasing its strong dividend return. Over the past 20 years, CVS Health's dividend yield has generally trended upward, rising from 0.6423% in 2003 to 3.0648% in 2023. While the stock price experienced fluctuations, from $18.06 in 2003 to $78.96 in 2023, consistent rises in the company's dividend per share, which grew from $0.116 in 2003 to $2.42 in 2023, highlight an impressive ability to grow shareholder returns. This strong trend not only exceeds the industry norms but also demonstrates CVS's commitment to enhancing shareholder value through robust dividend policies. Overall, this consistent rise in dividend yield signifies a favorable scenario for dividend-seeking investors.

Average annual Growth Rate higher than 5% in the last 20 years?

Explain the criterion for CVS Health (CVS) and why it is important to consider

To evaluate whether the Dividend Growth Rate for CVS Health has been higher than 5% over the last 20 years, we will consider the provided dividend per share ratios annually from 2003 to 2023. This growth rate metric is crucial because it indicates the health and sustainability of dividend payouts over an extensive period. A growth rate higher than 5% typically hints at strong financial performance and the firm’s capacity to distribute increased profits to shareholders.

Average annual Payout Ratio lower than 65% in the last 20 years?

Explain the criterion for CVS Health (CVS) and why it is important to consider

The payout ratio indicates the proportion of earnings a company pays to its shareholders in the form of dividends. A payout ratio lower than 65% generally suggests that the company retains sufficient earnings for growth and operational stability.

Dividends Well Covered by Earnings?

Earnings per share (EPS) is a crucial metric for dividend analysis because it indicates how much profit a company has earned for each share of its stock. A higher EPS suggests more profitability and a greater capacity to pay dividends. This is key to assessing whether dividends are sustainable in the long run.

For CVS Health (CVS), the EPS has shown a generally upward trend from 2003 ($1.0388) to 2023 ($6.4934), with a notable dip in 2018 (-$0.569). The dip in 2018 was significant and may reflect one-off events such as acquisitions or write-offs. However, the overall steady upward trend implies that CVS has increased its profitability over time, which bodes well for future dividend payments.

Dividends Well Covered by Cash Flow?

Explain why it is important for the dividend to be well covered by cash flow for CVS Health (CVS).

A well-covered dividend by cash flow indicates that CVS Health is generating enough operating cash to not only maintain but potentially increase its dividend. This signifies financial health and reliability in distributing earnings to shareholders. For investors, this means CVS can continue to provide consistent returns, and possibly increase dividends in the future, without jeopardizing its financial stability. When the cash flows exceed dividend payouts, this suggests a sustainable business model and adequate room for growth or debt repayment.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments means that the company has consistently rewarded shareholders with dividends and hasn't significantly cut them. This builds investor trust and provides steady income.

Analyzing CVS Health's dividend history over the past 20 years, it's clear that the company has shown remarkable stability and growth. Starting from a modest $0.116 per share in 2003, the dividend has progressively increased to $2.42 per share by 2023. Importantly, there hasn't been a single year where the dividend dropped by more than 20%. This demonstrates CVS Health's commitment to returning value to its shareholders, fostering trust and reliability. This trend is highly positive for income-seeking investors, showcasing the company's financial health and its ability to generate steady cash flow for dividends.

Dividends Paid for Over 25 Years?

Examining whether a company has consistently paid dividends for over 25 years serves as a reliable measure of its financial health and shareholder value commitment.

CVS Health (CVS) has paid dividends consistently for the past 25 years, increasing from $0.113 per share in 1998 to $2.42 per share in 2023. This long-term commitment to rewarding shareholders with increasing dividends is a strong indicator of the company's financial stability and its dedication to returning value to its investors. The continued and incrementally rising dividend payments are a positive trend, reflecting CVS Health’s robust financial health and strategic focus on shareholder value. This meets the criterion admirably, showcasing good dividend reliability.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchasing refers to a company's consistent practice of buying back its own shares from the marketplace, and it is an important indicator for several reasons. First, it often reflects management's confidence in the company's prospects, suggesting they believe the stock is undervalued. Second, stock buybacks can also help improve earnings per share (EPS) by reducing the number of shares outstanding, potentially boosting the stock's price and benefiting shareholders. Finally, consistent buybacks indicate prudent capital allocation and strong cash flow management, which are crucial for long-term financial health.

Over the last 20 years, CVS Health has shown a reliable pattern of stock repurchases from 2009-2017 and in the recent years of 2022 and 2023. The number of outstanding shares decreased from 1.45 billion in 2008 to 1.285 billion in 2023. Notably, the steepest decline happened between 2015 and 2017, when the number of shares dropped from 1.276 billion to approximately 814 million. The average buyback rate of 3.1249% annually signifies a steady but deliberate approach to repurchasing shares. Given that consistent share buybacks often suggest confidence in a company's valuation and robust cash flow, this trend is largely favorable. However, the uptick in shares from 2018-2021 should be investigated further to understand any deviations.