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The board of CVS Health Corporation (NYSE:CVS) has announced that it will pay a dividend of $0.665 per share on the 1st of May. This means the annual payment is 3.9% of the current stock price, which is above the average for the industry.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that CVS Health's stock price has increased by 53% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
CVS Health's Payment Could Potentially Have Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last payment made up 73% of earnings, but cash flows were much higher. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
Looking forward, earnings per share is forecast to rise by 67.9% over the next year. If the dividend continues on this path, the payout ratio could be 46% by next year, which we think can be pretty sustainable going forward.
View our latest analysis for CVS Health
CVS Health Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $1.10 in 2015, and the most recent fiscal year payment was $2.66. This means that it has been growing its distributions at 9.2% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
Dividend Growth Is Doubtful
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately things aren't as good as they seem. CVS Health has seen earnings per share falling at 6.4% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.
Our Thoughts On CVS Health's Dividend
In summary, we are pleased with the dividend remaining consistent, and we think there is a good chance of this continuing in the future. With shrinking earnings, the company may see some issues maintaining the dividend even though they look pretty sustainable for now. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.