CVS Health (CVS -1.33%) is one of the most influential healthcare companies in the country.
It operates the nation's largest pharmacy chain, a massive pharmacy benefit management business, and the health insurer Aetna, which covers 26 million people. But the stock has been losing ground lately, and shares plunged again after CVS delivered its first-quarter report, which showed rising medical costs from patients covered by its Medicare Advantage plans cutting into its profits. That, in combination with other headwinds, led management to cut guidance for the year.
Despite its recent struggles, CVS has long been a reliable source of profits and dividends for investors.
At current share prices, the company's dividend offers a forward yield of 4.6%. At that yield, you would have to buy about $21,740 worth of CVS stock in order to collect $1,000 in annual dividend income.
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Will CVS' dividend keep going higher?
CVS has a history of raising its dividend most years. It took a break for four years after its Aetna acquisition to rebuild its cash balance and improve its leverage ratio, but it has since returned to making annual dividend hikes.
It has raised its payouts by about 10% annually over the last three years, including 2024, and looks well positioned to keep raising them, despite the challenges it's facing.
Even with the guidance cut, CVS' dividend payout ratio is still less than 50%, meaning it has a lot of room to raise its dividend even if it doesn't grow its profits. Generally, a payout ratio of 80% is considered a reasonable upper limit.
Recently, CVS has been spending more of its profits on share buybacks than dividends.
But shares look cheap after the sell-off, trading at a forward P/E of around 10. If the company can overcome the headwinds related to its Medicare Advantage plans, the stock should make a steady recovery.
