Lanny’s Recent Stock Purchase – CVS Health Corp. (CVS)

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!

-Lanny

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35 thoughts on “Lanny’s Recent Stock Purchase – CVS Health Corp. (CVS)

  1. Ciao Lanny,
    CVS has been on my radar for quite some time, I traded it in options when it was at 72, but it’s still a good stock. I am only worried about the period that retail oriented businesses are passing through in the states. Thanks for sharing I will check it out once more as I have a little idle cash after closing some of my trades earlier in the month…
    Ciao ciao
    Stal

    • Ciao Stal –

      Appreciate the info and movements you’ve made! I know retail businesses haven’t been in flavor. I know pharmacies can be a little bit different; as there aren’t enough people to fill those positions there! At least between them and Walgreens, for example. I am curious on what CVS will do going forward to strategically place themselves as the must-have-group for consumers.

      -Lanny

  2. How do you purchase .1056 shares? Does your brokerage allow that? Which brokerage do you use? Do you DRIP the dividends?

    • Eugi –

      Love the questions. I use Capital One Investing and when you set up a $3.95 automatic trade by Monday at 5PM it performs a market order on Tuesday and has the ability to purchase partial shares when this is performed. And you’re damn right I DRIP the dividends! Free, as well and you can receive partial shares on the DRIP!

      -Lanny

  3. Very good! I did the same on 30th march and I bought 20 shares at 78,60. I have some 5k idle cash in IB waiting for next stock or ETF but I also think this is a good moment to buy CVS.

    Waiting for dividends and for your next post.

    • BPM –

      NICE! Yep – you could average down, as the price is around $1.50 less than where you bought it. Keep in mind the ex-dividend date is the 19th!!! Talk soon and thanks for stopping by.

      -Lanny

  4. I kinda like CVS at this price. There’s uncertainty around drug pricing which is where they make a big portion of their dollars and the recent contract losses are worrisome(since you make the most money on the last drug out in the PBM world so it’s totally a numbers game) but I think they can weather that. I did a quick DCF analysis based on the 2-4% growth rate and got a $106 FV so a $74.20 buy in price with the 30% safety window I like to give myself which is close to where it is now.

    I’d probably consider it at that price but I already have PBM exposure in my portfolio(UNH) so I don’t want to get too saturated in case some drug legislation comes down the pipeline that hurts the middlemen. If they drop a bit more though(high 60s) then I might pick up a few shares anyway because I think they’re pretty solid and don’t see pharmacies going anywhere anytime soon(even though I’m not a huge fan of retail in general).

    • Time –

      Nice analysis and love the quick-number-crunch. Yep – big upside and I believe the fair value you calculated also approximated their 52 week at high at one point haha.

      Quite a bit of change in the industry, but similar to yours – fit my criteria and was very excited a company finally fell into the screener! I may be buying more within the next 10 days.

      -Lanny

  5. Honestly, I never even considered CVS. But, it’s great that you can find a stock that fits within your criteria. It’s also good that you had the patience to wait rather than jump in hastily.

    • DP –

      Thanks for the post and you’re absolutely right. I wasn’t swinging just to swing here. Fit the metrics and has great financials in regards to their condition. Looking forward to owning them!

      -Lanny

  6. Nice analysis, Lanny. If I were still in my individual stock picking days, this would definitely be intriguing to me.
    As of late, I’ve been building up some cash. I’m not sure where I want to deploy it yet since I think we’re overdue for a correction, but it also sucks to sit on the sidelines. 🙂

    • Mike –

      Appreciate the comment, as always. Beaten down blue chipper here almost. Huge 52 week drop, strong valuation, strong payout, etc.. I don’t even need to keep going. Also – please, please, please bring us that correction haha. Is there a raindance to go with it? Kididng, kidding. Man.. let’s get that correction.

      -Lanny

  7. I bought CVS back in November, due to lack of funding for my commercial property investment, I had to sell it, with much regret. The stock has turned around. This is a great buy.

  8. I have an outstanding lmt order on this one @ 70. The div fundamentals look great but it’s down so much (22%) in the past year. Markets don’t like uncertainty, and this one is very vulnerable to the political process so while I want to own it, I want more cushion.

  9. I was looking at CVS as well. They kept popping up on the list in every screener I used, along with HRL. They look like a good long term pick with good valuation at this price. Nice pick up!

    • Daze –

      Thanks for the comment! Exactly, it came up on my screener and thought, well – this is a big company, I know what they are for/stand for and they are in the pharm industry. I love it. Buying any Daze?

      -Lanny

  10. Lanny,
    Been long on CVS since late last year, before the drop. I liked them then, and really would tell people to buy in now. I understand some people view them more as a retailer with the majority of their standalone stores having larger retail segments, but most of their profits are pharmacy based I believe. Just being a part of the healthcare supply chain is a huge boon.
    – Gremlin

  11. I always analyze stocks by if I would want to open up a franchise of thier store and this one I’m hesitant about. While it doesn’t matter what Government Healthcare does, these facilities will continue to fill perscriptions. That’s the plus.
    On the downside, pharmacies are heavily saturated. You have companies like Walmart expanding pharmacies and they’re always a Walgreens across the street. Why would go someone go to CVS over Walgreens?
    Until I can figure out why someone would go to a Walgreens over CVS or vise versa, I’m hesitant to hop into the pharmacy market. Then again, maybe you know why?

    • Wallet –

      Love the perspective you have. The plus is right – they will have pharmacists to fill prescriptions. If anything – the older you are, the more you are going to be prescribed to, and the generations… are getting older : )

      I would say that it sometimes depends what your preference is – they both are similar sizes in market cap and can see both lasting in the market place, as they have different values, goals and products.

      I love the questions and I based it off of this: not as many stores as I had thought they would have, solid ventures with other retailers to have them as the pharmacy provider, within the healthcare-consumer realm and in the last 5 years when I’ve had a prescription filled out – I did end up going to CVS, simply because – they were closest to the doctor. Thoughts?

      -Lanny

      • I was thinking about this comment this morning as well. Asking myself where I would fill my prescriptions at? The only place I’d feel comfortable with, is a place I’m already familiar with like my local grocery store or supermarket, where I already go.
        In that case, CVS has the right idea partnering with Target, and if they partner with other stores where people already feel comfortable and shop, then I think they will DESTROY Walgreens!
        I usually feel really out of place whenever I go to prescription only CVS or Walgreens, because they’re full of sick people and disguised as a store with limited selection and cheap knick knacks.
        I think whoever partners with the bigger stores will win the prescription wars. Good call with CVS!

  12. Cool! Great buy! I see a lot of my DGI friends buying CVS. I´m intrigued aswell, so might start a small starter position before ex.date. Thanks for the heads up!

    • Seedling –

      Wild how fast the yield can creep up, especially when you are down 25% for the least 52 weeks! It’s pretty incredible, if you ask me. Great dividend growth street and financials to boot. Keep them in mind!

      -Lanny

  13. Awesome purchase! I’ve had CVS on my watch list for awhile but I’ve really never done much research into the company to make a move. I will definitely move this one into my closely watch to buy list!

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