Is the CVS Health Corporation’s One-Year Share Price Drop a Buying Opportunity? (CVS)

While the CVS Health Corporation (NYSE:CVS) suffered a double-digit-percentage share price drop over the past year, strong dividend income payouts and robust financial results for the beginning of 2019 might indicate a buying opportunity.

Unfortunately for some shareholders, the share price decline was not limited just to the past year. The CVS stock reached its all-time peak price in mid-2015 and has been trending lower for nearly four years. CVS shareholders who took a position in the stock within the past few years might have to wait to recover their initial investment — or take the losses. However, new investors might have an opportunity to take a position at the currently discounted rates and bet on short-term asset appreciation while collecting dividend income at above-average yield levels.

As with all investing decisions, interested investors must perform their own stock and market analysis to confirm CVS stock’s compatibility with their own investment strategy and portfolio goals before taking any positions. However, those investors who decide that the CVS Healthcare Corporation might offer an upside potential, should act before the ex-dividend date to start receiving immediate benefits of dividend income payouts. All investors that can claim share ownership before the late-July 2019 ex-dividend date will be designated shareholders of record on the record day, which occurs one day after the ex-dividend date. The company will distribute the next round of dividend payments to all shareholders of record on the pay date, which should occur at the beginning of August. Based on the company’s dividend schedules over the past few years, CVS should anounce its dividend declaration and exact dividend dates in the first or second week of July 2019.

CVS Health Corporation (NYSE:CVS)

Founded in 1892 and headquartered in Woonsocket, Rhode Island, the CVS Health Corporation provides integrated pharmacy health care services. The company operates through Pharmacy Services and Retail/LTC business segments. The Pharmacy Services segment offers pharmacy benefit management solutions, formulary management, Medicare Part D services, mail order, prescription management systems and other medical pharmacy management services under the Caremark, Accordant, SilverScript, NovoLogix, Coram, Navarro Health Services and several CVS brand names. The company currently operates approximately 10,000 stores in 49 U.S. states, the District of Columbia, Puerto Rico and Brazil. Additionally, the company operates online retail pharmacy websites, 38 on-site pharmacy stores, long-term care pharmacy operations and retail health care clinics. The company changed its name from the CVS Caremark Corporation to CVS Health Corporation in September 2014.

Dividends

The CVS Health Corporation’s current $0.50 quarterly dividend amount is equivalent to an annualized distribution of $2.00. This annualized payout converts to a 3.6%forward dividend yield at the current share price levels. One positive effect of the share price decline is the rise of the dividend yield. The current yield is 54% higher than the company’s own five-year yield average of 2.37%.

However, CVS’s current yield also outperformed the 2.16% average yield of the entire Services sector by nearly 70%. Additionally, the current 3.6% yield is also more than 165% above the 1.37% average yield of the Drug Stores industry segment. Moreover, as the company with the highest yield in the Drug Stores segment, CVS’s current yield outperformed by 6.4% the 3.43% simple average yield of the segment’s only dividend-paying companies.

CVS has been distributing dividends for more than a century. The company failed to hike its current annual dividend amount in the past two years. However, prior to paying a flat annual dividend distribution in the past three years, CVS hiked its annual payout amount for 14 consecutive years. Even with three years of flat annual dividends, CVS advanced its total annual payout amount more than 17-fold. This advancement pace corresponds to an average growth rate of nearly 20% per year. Furthermore, CVS missed three more annual dividend boosts from 2001 through 2003. However, even with a total of six missed annual payout boosts, the company enhanced its annual dividend amount more than 23-fold over the past two decades, which is equivalent to an average annual growth rate of 17%.

Share Price

Despite occasional short uptrends, the company’s share price has been residing an overall downtrend for several years. However, the share price entered the trailing 12-month period on a four-month uptrend. After gaining 24% from the beginning of the trailing 12-month period, the share price reached its 52-week high of $80.80 on November 13, 2018.

Following the mid-November peak, the downward pressure of the overall market decline sent the CVS share price tumbling down and the stock lost all its gains by mid-December. While the overall market and most of the equities bottomed out on December 24, 2018, the CVS share price merely paused, traded sideways until mid-February and then plunged another 20% towards its 52-week low of $52.13 on April 2, 2019. While still nearly 16% down over the past year and nearly 30% lower than it was five years ago, the share price has gained more than 5% from its 52-week low at the beginning of April 2019.

The share price’s 50-day moving average has been below the 200-day average since the end of January 2019. However, the 50-day moving average has leveled off and even started rising from its current 52-week low of $53.74 on June 7, 2019. This moving average change certainly does not imply a share price reversal into a steep uptrend. The 50-day average is still more than 15% below the 200-day average. However, investors should monitor the progress of the 50-day moving average for any early indication that the technical indicators might suggest an uptrend potential, even if it is only over the short term. With the steady and substantial dividend income distributions, even a minor share price move upward could translate into significant total returns on investment.

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.