CVS: Safety, Growth, and Yield

02/12/2016 7:00 am EST


Chloe Jensen

Chief Analyst, Cabot Dividend Investor

In the current market environment, we are focusing only on rock-solid dividend payers in the most conservative market sectors, explains Chloe Lutts Jensen, editor of Cabot Dividend Investor.

CVS (CVS) is one of the largest drugstore chains in the US and a leading provider of pharmacy and pharmacy-related services.

In addition to its 7,900 retail pharmacies, CVS operates over 1,000 walk-in clinics and a pharmacy benefits manager with over 70 million members.

Last year, CVS expanded its reach into assisted living homes, acquiring Omnicare, the leading provider of pharmacy services to long-term care facilities, in June.

Most recently, CVS acquired Target’s pharmacy business in a deal completed in December.

The company—yielding 1.8%—has paid dividends since 1985 and has increased the dividend annually since 2004. Over the past five years, each boost has averaged 28%, a stellar growth rate for a company of this quality.

Combined with analysts’ expectations of double-digit EPS growth for the next five years, CVS’s dividend history earns the stock a perfect Dividend Safety rating and a stellar Dividend Growth rating.

CVS’s expansion is translating into higher revenues and more money for investors. Over the past five years, CVS has grown net income per share consistently, by an average of 10% per year.

While the stock’s rebound may not begin immediately, CVS’s impressive relative strength year-to-date suggests that most of the sellers have been shaken out of the stock.

CVS is a buy for investors looking to add a high quality undervalued healthcare stock with excellent dividend growth potential.

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