CVS Health (NYSE: CVS) shares peaked over a year ago, but have since plummeted almost 27% from their all-time high. Dividend growth investors are already sniffing around for bargains in this one-of-a-kind healthcare business.
Is CVS Health a good addition to your dividend growth portfolio? To find out, let’s take a look at some of the most compelling reasons to buy the stock right now.
Reasons to Get CVS Health Right Now
CVS Health stock currently offers an above-average 3% dividend yield. If the future resembles the past, acquiring shares of the stock in a portfolio today could result in a plethora of passive income during your retirement years. Over the last decade, the company has increased its dividend payout by 169%.
You’ve definitely heard of the company’s massive pharmacy chain, but this is more than just a retail operation. It also operates a pharmaceutical benefits manager with approximately 110 million plan members. It is a lucrative position to be in if you provide benefits and are also paid to administer them. As a result, in 2018, the corporation took another significant step forward by acquiring Aetna, a renowned health insurance benefits manager.
Following its $78 billion acquisition of Aetna, CVS Health froze its dividend payout for a few years to assist pay down debt. Now that the dust has settled, we can see that it was well worth the money. CVS Health’s free cash flow has increased 175% in the last five years to $13.5 billion per year.
Last year, the corporation resumed yearly dividend increases, and it has since increased its payout by a stunning 21%. Despite two years of significant increases, the company only needed 22% of the free cash flow operations generated in the previous year to achieve its dividend pledge.
Greater revenues from primary care
Pharmaceutical corporations get a lot of bad publicity for high prescription costs yet they’re relatively tiny contributors to America’s $4.3 trillion annual healthcare bill. Primary care professionals, or the firms that employ them, absorb a considerably bigger portion.
CVS Health recently announced a deal to purchase Oak Street Health (NYSE: OSH) for $10.6 billion in order to bring more of the healthcare services Aetna members receive in-house. The deal is likely to be completed later this year. CVS Health will have a scalable senior-focused primary care strategy that already runs in 169 medical sites across 21 states when this happens.
CVS Health agreed to acquire Signify Health in September in a transaction valued at roughly $8 billion, in addition to its recent agreement to acquire Oak Street Health. Signify Health offers a clinician network of 10,000 spanning all 50 states.
Buy now
CVS Health shares are currently priced at only 9.3 times management’s midpoint earnings forecast for 2023. Even if the business stagnates, investors can make market-beating gains at this cheap valuation.
CVS Health’s stagnation appears quite unlikely. With the forthcoming acquisitions of Signify and Oak Street, CVS Health might become a significantly greater role in America’s massive market for primary care services. If you’re looking for rapidly expanding dividend income, adding some CVS Health shares to your portfolio now appears to be the appropriate choice.
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