Is this dividend-beating stock a buy?

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Dividend stocks are often in high demand because of the passive income they provide and their ability to generate superior returns over long periods of time. So, finding great income stocks to buy during a downturn is a dream come true for many investors – but only if the company in question has what it takes to bounce back.

Is this the case for CVS Health (NYSE:CVS)? The healthcare giant has been a market laggard over the past year. Keep reading to find out if there are better days ahead for the drugstore chain.

What’s going on with CVS Health?

CVS Health has faced numerous headwinds over the past 18 months. First, the company isn’t generating as much revenue from coronavirus vaccines as it used to. It suffers the same fate as many other companies in this market. And there’s more.

Last year, CVS Health lowered its guidance several times – a move the market didn’t like – and did the same to its full-year 2024 guidance. CVS Health now expects earnings per share (EPS) of at least $7.06, down from the projected EPS of at least $7.26.

The fact that CVS Health has done this repeatedly over the past year goes beyond lower-than-expected revenue. This speaks to uncertainty within at least some of the company’s operations.

Additionally, the healthcare giant lost business from a partner last year. Health insurer Blue Shield of California has decided to diversify its list of Pharmacy Benefits Managers (PBM). While it primarily relied on CVS Health to obtain prescription medications for its patients, Blue Shield now has a list of five different pharmacies it does business with.

That list still includes CVS Health, but the pharmacy chain has lost business due to Blue Shield’s initiative. This announcement caused CVS Health’s stock price to drop by more than 10%.

Why Long-Term Investors Should Hold On

There’s no doubt that CVS Health is going through turbulent times. Every company does it. Most important for investors is to focus on CVS Health’s long-term prospects. Does the health specialist still have the means to deliver solid results over long periods of time? In my opinion, the answer is yes. Here are some reasons why.

First, CVS Health has spent years building a trustworthy – and trustworthy – brand in one of the industries where it matters most: healthcare. It’s literally a matter of life and death.

Second, CVS Health’s pharmacy chains have become an integral part of hundreds of communities across the United States, where many patients have been going to fill their prescriptions for years. It is not easy to change such ingrained habits. Second, CVS Health has created an ecosystem that allows it to offer comprehensive and complementary services to patients, so it is not just a chain of pharmacies.

Third, it is an insurer through Aetna in the primary care sector and is also looking to begin developing generic drugs through a new subsidiary called Cordavis. Demand for the services provided by CVS Health will only increase as the population ages rapidly. This places the company in an enviable position to continue serving patients while delivering robust results for a long time.

Additionally, CVS Health is a relatively stable company with moderate growth over the past decade.

While past results are no guarantee of a bright future, investors also shouldn’t base their investment decisions on the company’s poor performance over the past 18 months: zooming out helps to see things in perspective . CVS Health’s dividend profile is quite strong.

The company has increased its payouts by just under 142% over the past decade. CVS Health offers a dividend yield of 3.81%; the average for S&P500 is 1.35%. The company’s cash payout ratio is just 30.13%, leaving plenty of room for further dividend increases.

While it’s difficult to say when CVS Health will emerge from its recent slump, the company’s long-term prospects still look attractive, especially for investors looking for a stable, reliable dividend payer. CVS Health, that’s it.

Should you invest $1,000 in CVS Health right now?

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.

Is this dividend-beating stock a buy? was originally published by The Motley Fool

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