CVS Health (NYSE:CVS) Is Paying Out A Larger Dividend Than Last Year

By
Simply Wall St
Published
January 07, 2022
NYSE:CVS
Source: Shutterstock

CVS Health Corporation's (NYSE:CVS) dividend will be increasing to US$0.55 on 1st of February. This will take the annual payment to 2.0% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for CVS Health

CVS Health's Earnings Easily Cover the Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, CVS Health was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 15.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which is in the range that makes us comfortable with the sustainability of the dividend.

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NYSE:CVS Historic Dividend January 7th 2022

CVS Health Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the first annual payment was US$0.50, compared to the most recent full-year payment of US$2.20. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, CVS Health has only grown its earnings per share at 4.1% per annum over the past five years. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

We Really Like CVS Health's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for CVS Health that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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