While the company’s share price is still trending lower on investor fears over a class-action lawsuit outcome, Cardinal Health, Inc. (NYSE:CAH) has continued to deliver strong earnings that continue to fund steadily rising dividend income payouts.
After hiking its annual dividend for more than three decades, Cardinal Health is one of only 57 companies designated as Dividend Aristocrats. These companies are components of the S&P 500 Index with sufficient market capitalization that have boosted their annual dividend payout amount for at least the last 25 consecutive years.
While Cardinal Health delivered a long streak of rising dividend income payouts to its shareholders, the share price took to the opposite trend over the last five years. After losing two-thirds of its value in the aftermath of the 2008 financial crisis, the share price nearly tripled before peaking above $90 in March 2015. However, despite strong fundamentals and relatively steady earnings, the share price has lost more than half of its value since the 2015 peak on fears and uncertainties over the outcome of a pending lawsuit.
Class Action Lawsuit
A New York law firm filed a class action suit on behalf of Cardinal Health shareholders who purchased shares between March 2, 2015, and May 2, 2018. The allegations are that Cardinal Health’s management made materially false or misleading statements or failed to disclose negative information regarding the integration and performance of the radio-frequency identification (RFID) inventory tracking technology and advanced supply chain solutions company Cordis.
The lawsuit alleges specifically that Cardinal Health never implemented the promised solutions to enhance Cordis’ antiquated and ineffective global supply chain that was causing operational and inventory problems at Cordis. The lawsuit claims further that, as a result of these inactions, Cordis manufactured and accumulated excessive amounts of product inventories. The lack of accurate tracking resulted in expired product that was not properly accounted and led to Cardinal Health materially overstating Cordis’s inventory balances.
While all these actions occurred in the past, the lawsuit also claims that Cardinal Health will have to make substantial investments in Cordis’s information technology and supporting infrastructure to correct the alleged deficiencies of the Cordis supply chain. The additional and unplanned selling, general and administrative expenses could reduce Cardinal Health’s future earnings despite positive financial results currently.
On August 8, 2019, Cardinal Health reported its fourth-quarter and full-year results for its 2019 fiscal year, which ended on June 30, 2019. For the fourth quarter, Cardinal Health reported a 6% year-over year revenue increase from $35.3 billion to $37.4 billion for the most recent quarter. Operating earnings were $307 million, or $0.65 per diluted share. Adjusted earnings increased 9% from $465 million in the last quarter of 2018 to $507 million or $1.11 per diluted share. The $1.11 adjusted earnings per share (EPS) was nearly 10% higher than one year earlier and beat analysts fourth-quarter EPS expectations of $0.93 by 19.4%.
Full-year 2019 revenues advanced 6% to $145.5 billion over fiscal 2018 revenues of $136.8 billion. However, adjusted earnings of $2.4 billion in 2019 lagged slightly behind $2.6 billion earnings one year earlier. However, because a share buyback program reduced the total number of outstanding diluted shares by nearly 5%, the adjusted EPS of $5.28 in 2019 was nearly 6% higher than the $5.00 adjusted EPS from the previous year.
The share price entered the trailing 12-month period riding the downtrend that began in mid-2015. Amid moderate volatility, the share price surged nearly 7% at the onset of the trailing one-year period towards its 52-week high of $57.63 on November 15, 2018. After peaking in mid-November 2018 and pushed down by pressure from the overall market correction in December 2018, the share price declined more than 25% to trade below $43 by the end of 2018.
After recovering most of those losses and climbing back to within 2% of the November peak, the share price reversed direction again and fell to its 52-week low of $41.74 by August 28, 2019. Since this low, the share price advanced higher to close on September 23, 2019, at $47.16. While still 12.5% short of the November peak, the Sept. 23 closing price was 13% above the 52-week low from the end of December 2018.
While unable to offset the share price decline, dividend income distributions cut the 12.5% capital losses to a 9% total loss for the trailing 12 months. Three and five year total losses were between 29% and 26%. However, a positive outcome from the class-action lawsuit could remove the downward pressure and allow the share price to reflect the Cardinal Health’s steady financial results and the company’s long-term rising dividend income.
Cardinal Health, Inc. (NYSE:CAH)
Headquartered in Dublin, Ohio, and founded in 1979, Cardinal Health, Inc. operates as an integrated health care services and products company. The company provides customized solutions for hospitals, health care systems, pharmacies, ambulatory surgery centers, clinical laboratories and physician’s offices through two primary business segments — Medical and Pharmaceutical.
The Medical segment manufactures, sources and distributes medical, surgical and laboratory products under the Cardinal Health brand. Additionally, this segment also provides incontinence, wound care, enteral feeding, urology, operating room supply, electrode, needle, syringe and other disposable surgical products. Furthermore, the Medical segment distributes a range of national brand products, including medical, surgical and laboratory products, as well as provides supply chain services and solutions to hospitals, ambulatory surgery centers, clinical laboratories and other health care providers.
Alternatively, the Pharmaceutical segment distributes branded and generic pharmaceutical, specialty pharmaceutical, as well as over-the-counter health care and consumer products. The segment also provides services to pharmaceutical manufacturers and health care providers for specialty pharmaceutical products. Additionally, the Pharmaceutical segment provides nuclear pharmacies and radiopharmaceutical manufacturing facilities, offers pharmacy management services and provides medication therapy management and patient outcomes services to hospitals, other health care providers and payers. This segment also repackages generic pharmaceuticals and over-the-counter health care products.
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.