CVS Offers Stable Earnings, Fast-Growing Dividend

By
A A A
Share |

After three years of single-digit earnings growth,CVS Caremark ( CVS ) rebounded in 2012.

Final results haven't been reported yet, but the Street estimates 2012 EPS climbed 21%. Analysts expect earnings this year to rise 16%.

The five-year EPS Stability Factor is 4 on a gauge that runs from 0 (calm) to 99 (erratic).

For the income investor this is good news because stable earnings growth provides a platform for dividend growth. CVS has increased its dividend for 10 consecutive years and aggressively since 2007. In the past six years, the annualized payout rose from 15.5 cents a share to 65 cents a share last year.

In December, the company announced that the quarterly payout would be jacked up from 16.25 cents to 22.5 cents a share, or annually from 65 cents to 90 cents. The new quarterly rate will be paid on Feb. 4 to shareholders of record Jan. 24.

The current annualized yield is 1.7%, which is below the S&P 500's 2.56% yield.

However, CVS Caremark's stock-price appreciation has been better than the major indexes. Over the past five years, CVS rose 40% vs. 33% for the Nasdaq and 11% for the S&P 500. Last year, CVS advanced 23%, topping the Nasdaq's 19% gain.

The company has more than 7,400 drugstores, a pharmacy benefits unit serving 63 million plan members and 640 MinuteClinics in 25 states.

CVS intends to grow the MinuteClinics to 1,500 in 35 states by 2017.

In Q3, pharmacy services accounted for about 60% of net revenue.

Drawbacks include the government's role in the health sector; slim margins in the PBM business; and a return on equity of about 10% in 2011 -- well below the 17% minimum associated with elite stocks.

The Composite Rating of 82 also is somewhat low, though about two months ago, it was 68. The rating combines all five IBD ratings into a single number. A rating of 82 means the stock is rated higher than 82% of the stocks in IBD's database.

Q4 and full 2012 results will be released Feb. 6.

CVS cleared a 47.88 buy point in a first-stage double-bottom base in December. The stock is extended from a valid buy range.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Personal Finance , Investing Ideas

Referenced Stocks: CVS

Investor's Business Daily

Investor's Business Daily

More from Investor's Business Daily:

Related Videos

Stocks

Referenced

100%

Most Active by Volume

89,970,926
  • $16.15 ▲ 0.12%
77,131,582
  • $58.94 ▼ 1.31%
67,336,935
  • $26.56 ▲ 1.68%
48,814,124
  • $86.20 ▲ 0.02%
47,526,126
  • $23.21 ▲ 0.78%
44,660,424
  • $23.91 ▲ 6.36%
38,799,699
  • $4.289 ▲ 4.36%
36,199,890
  • $40.01 ▼ 0.97%
As of 4/17/2014, 04:07 PM