CVS Health (NYSE:CVS) Has Announced That It Will Be Increasing Its Dividend To $0.605

The board of CVS Health Corporation (NYSE:CVS) has announced that it will be paying its dividend of $0.605 on the 1st of May, an increased payment from last year's comparable dividend. This takes the dividend yield to 3.3%, which shareholders will be pleased with.

Check out our latest analysis for CVS Health

CVS Health's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite easily covered by CVS Health's earnings. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 182.9%. Assuming the dividend continues along recent trends, we think the payout ratio could be 26% by next year, which is in a pretty sustainable range.

CVS Health Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the annual payment back then was $0.65, compared to the most recent full-year payment of $2.42. This means that it has been growing its distributions at 14% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Has Limited Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. CVS Health's earnings per share has shrunk at 13% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. While the payments look sustainable for now, earnings have been shrinking so the dividend could come under pressure in the future. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 3 warning signs for CVS Health that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.