Rhode Island-based CVS Health (NYSE: CVS – $79.33) said it will raise its annual dividend by 18% in 2017, to $2.00 a share from $1.70 a share. At current levels, the new payout implies a dividend yield of 2.53%, slightly higher than the broader market. CVS also said that it affirmed its adjusted earnings-per-share outlooks for 2016 and 2017, and expects to deliver cost savings of $700 million to $750 million across its businesses by 2021. And the company has more than $18 billion authorized for share repurchases over the next few years. Adjusted earnings in 2016 are still expected to be between $5.77 and $5.83 per share, straddling the $5.81 average estimate, while 2017 adjusted earnings per share is seen between $5.77 and $5.93 compared to the $5.87 consensus.
The stock has slipped about 24% in value since its May highs, but I think that the market may have overreacted some, as CVS still has a dominant position in a very lucrative industry. Also, I believe management will be able to offset some of the lost revenue in its pharmacy benefits management business over time. The company generates healthy cash flows, which can be used to make acquisitions as well as increase dividends and make additional share repurchases. Positions in high-quality CVS Health can continue to be held for the longer-term.