As I covered yesterday, the Fed announced a rate hike for the first time in nearly a decade. Now, this was what I expected to come out of the Fed meeting, but it may mean that you’ll want to tweak your investment strategy in the coming months. For those of you who are looking for steady dividend income, for example, I’d say that your best bet is to stick with strong domestic plays that have solid sales and earnings.
One example is CVS Health Corp. (CVS). The company provides integrated pharmacy health care services and operates more than 7,700 CVS pharmacies and Long Drug stores throughout the U.S. Aside from prescription and over-the-counter drugs, CVS stores sell beauty products, seasonal merchandise, greeting cards and a limited selection of convenience foods. Aside from the retail division, CVS has three more businesses: pharmacy benefit management (PBM) services, wellness clinics and specialty pharmacy offerings.
If you regularly run your portfolio through Portfolio Grader like I do, you might be surprised that I’m highlighting CVS. After all, the stock currently receives a C grade–which normally means that the stock is a hold. However, you can see that fundamentally, CVS is a very solid B. Sales Growth, Earnings Growth, Earnings Momentum, Cash Flow and Return on Equity all receive B ratings–it’s the Quantitative Grade (a C) that brings the total grade down.
However, if you run CVS through Dividend Grader, it’s a different story. It receives straight As for Dividend Trend, Dividend Reliability and Forward Dividend Growth, which leads the stock to receive an overall A rating (Strong Buy).
So which is it: A hold, or a buy? Well, if what you’re looking for is a solid dividend stock, CVS is the latter.
After all, CVS Health knows how to inspire confidence in its shareholders. The company recently increased its quarterly dividend by 21% (from $0.35 to $0.425 per share) and announced that it expects to see a 14.25% increase in earnings growth in 2016, particularly in the second half of the year. (Analysts currently expect to see a 12.4% increase in earnings growth for CVS, so we’ll likely see some upward analyst revisions.) Past history also contributes to the strong rating: The company has paid dividends for 100 consecutive quarters and has seen 7.5% dividend growth in the past year.
CVS has a very strong growth trajectory, too. The company recently closed deals to buy Omnicare and Target’s in-store pharmacies and clinics for $10 billion and $1.9 billion, respectively. These acquisitions contribute to CVS Health’s double-digit growth projections for both sales and earnings in the coming quarters. Earnings growth is expected to see a 25.6% increase this quarter and a 10.5% increase next quarter. Sales growth is projected to have a 10.3% increase this quarter and a 14.2% increase next quarter.
I also want to note that CVS stock trades at less than 17 times its forecasted earnings, which is right around the S&P 500 average. So while the stock may have pulled back lately, this opens up an excellent buying opportunity.
The bottom line is that CVS could be a great choice if you’re looking for strong dividends in the coming months. To find more opportunities like CVS, please feel free to use my free Portfolio Grader and Dividend Grader stock ratings tools.