Wow, wow. So it’s been over two months and I have definitely found a stock that fit the metrics of an undervalued dividend stock investment. It took some thorough research and thinking about the companies that many people take part in every single day or have made them a part of their lives. With healthcare and prescriptions, this led me to this stock and this company shows high signs of undervaluation. Come check out what company I purchased stock into and why!
CVS Health Corp. (CVS) Stock Purchase
From Google Finance, “CVS Health Corporation, together with its subsidiaries, is an integrated pharmacy healthcare company. The Company provides pharmacy care for the senior community through Omnicare, Inc. (Omnicare) and Omnicare’s long-term care (LTC) operations, which include distribution of pharmaceuticals, related pharmacy consulting and other ancillary services to chronic care facilities and other care settings. It operates through three segments: Pharmacy Services, Retail/LTC and Corporate. The Pharmacy Services Segment provides a range of pharmacy benefit management (PBM) solutions to its clients. As of December 31, 2016, the Retail/LTC Segment included 9,709 retail locations (of which 7,980 were its stores that operated a pharmacy and 1,674 were its pharmacies located within Target Corporation (Target) stores), its online retail pharmacy Websites, CVS.com, Navarro.com and Onofre.com.br, 38 onsite pharmacy stores, its long-term care pharmacy operations and its retail healthcare clinics.”
See below for the metrics and reasons for purchase!
1.) Dividend Yield: At the time of purchase, their dividend yield stood at 2.57%, which is better than the S&P yield on average and is above my car loan interest rate. I like the yield and the entity itself. There are almost 10,000 locations and they have around 17% of their stores located within Target (TGT). I know many friends that are pharmacists at CVS and there is no lack of demand for them, that is for sure, especially given the status of our population & health care in the US.
2.) Dividend Growth: They are cruising to their 14th year of dividend increases and are edging towards that aristocrat status, only 11 more to go! (I’ll be almost 40 by that time, ugh) What’s sweet is this: the last 3 years the average growth rate is 22% and the last 5 year’s average growth rate is 25%. I don’t expect that much in regards to growth, but foresee double digit going forward for the upcoming few years.
3.) Price to Earnings Ratio: With analysts expecting $5.87 in earnings per share this year, this computed to a P/E ratio of 13.26. Not too bad at all, and definitely fits within the Dividend Diplomat Stock Screener!
4.) Payout Ratio: Additionally, their payout ratio, based on $2.00, is right at 34%, which is on the lower side typically! I could confidently say that they have plenty of room to keep the dividend roaring in regards to growth for the upcoming few years, as a 10% growth only moves the payout ratio up 3 percent. Talk about room!
5.) Performance & 5-year Yield Average: I would also like to point out the yield of 2.57%; which is greater than their 5 year yield average by approximately 110 basis points, showing further signs of undervaluation! Their 5 year yield average per dividendinvestor.com showed 1.50%. Additionally, when you drop almost 25% in one year, this definitely helps your comparison to the 5 year yield average!
See my trade screen shot below:
I purchased $1,180 worth at $77.8555 per share for a total of 15.1056 shares. This alone adds $30.21 to my forward dividend income and may not be the last time I pick up this type of entity! In fact, I will, within the next two Tuesdays, purchase more shares if they stay at or below this share price. Reason being – their ex-dividend date is the 19th of April and I am trying to make better use of my idle cash by potentially paying more down on my vehicle loan.
CVS Stock purchase summary & Conclusion
This is a new position in my portfolio within the healthcare-consumer industry and is now producing me a forward income of $7.55 per quarter, not much but it is a start. Luckily, this was purchased before the ex-date, so I will be able to grab 3 quarters worth of dividends this year. I’m very lucky to have had cash available and am able to knock away at the investment goals I have established. With my last article + this purchase article, I’m ecstatic with the investment and cash moves I’ll be making this year. Overall, excited with this purchase and continues my path to accomplish my goals set for 2017.
What do you guys think? Do you prefer CVS (CVS) or Walgreens (WBA)? Sitting idle with cash or making moves? Talk soon and thank you so much for stopping by!