Why have CVS stocks fallen significantly?
Dividend development of the CVS Health share
It's time again to move on to a single stock using the Dividend Alert Strategy. Most recently I have already given some companies such as Allianz, Royal Dutch Shell, Veolia or also Dividend aristocrats W.W. Grainger illuminated. In the articles I used real numbers to show how I go about buying my shares in practice. Today I'll take a look at them CVS Health stock.
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So far I have the shares of Allianz, Royal Dutch Shell, Altria, Veolia, WW Grainger, Danaher Corporation and Procter & Gamble under the microscope. It is worthwhile for you if you look at the individual articles in the series of articles. You learn like that very quickly Dividend alarm in practice is applied and what results you can achieve with the right workflow.
Why did I choose CVS Health?
For today's article, I have let my readers decide. In several surveys and inquiries here in the blog and also in the newsletter, the decision was quickly made at the beginning that it would be a share from the Pharma section should be.
In the further course the name of CVS Health called. Now it has to be said that CVS Health not a pure pharmaceutical company in the true sense of the word is. But as is so often the case, some companies can be classified into different categories. In this case it may well be the Category trade, real estate, medicine or even pharmaceuticals be.
Of course, this does not matter for the presentation here in the article. Everyone can decide for themselves what they see CVS Health as and how they place these shares in their portfolio.
What does CVS Health do?
The CVS Health Corporation is a retail company in the pharmaceutical sector. The company, which was founded in Massachusetts in 1963, was able to expand its business to the whole of the USA through numerous mergers and now offers offers in the healthcare sector in all states of the USA at. According to its own information, the company is currently transferring 9,500 drug stores and over 1,100 health clinics.
The company is currently listed on the stock exchange valued at approximately $ 120 billion. Around 83% of the shares are in Free float. Despite this high proportion, the volatility of the last 250 days at an average of 26%. The Earnings per share and the dividends are increasing every year. The P / E ratio is normal with a value below 30.
Only the different KCV indicates distortions in the balance sheet due to buy or sell options by board members or other persons. The PEG ratio, which compares the P / E ratio with the expected percentage earnings growth, indicated an undervaluation in 2015 and signals an overvaluation for 2016.
The company is financially stable and growth-oriented. The debts are kept within limits and growth and Profits are abundant. The company is positioned in the healthcare sector in a growth market that is attracting many investors.
CVS Health Corporation offers a comprehensive area for investors on its modern and clear website. It is one of the best websites for investors & shareholdersI've seen so far. Including the company's long term goals:
A little anecdote: The company did all of them in 2014 Tobacco products banished from its branches. This means that CVS Health Corporation is foregoing around two billion dollars in sales per year. However, this step shows the awareness of the company. It wants to be anchored in the healthcare system and is ready to forego profits in order to promote health.
This paragraph was made available by Jonas Höfgen from Hoefgen-blog.de
Current KPIs from CVS Health
- Dividend yield: 1,70%
18th place out of 21 in the pharmaceutical category
- current rebalancing option:
Sale of Merck - purchase of CVS Health
- Buy signal: less than 94.32 euros
- Sell signal: from 301.82 euros
At the top based on the Color scale can you see CVS Health a buy signal is currently generated. That makes today's evaluation all the more interesting, because CVS Health is one of them my favorite defensive stocks.
I will definitely put them in the sample depot, the only thing that matters for me now is whether everything is in order and what the prospects are.
In the upper area I have put together some links for you. Are linked next to the CVS Health's investor relations website also different websites latest news as well as the TraderFox Charts. Also the links to two Dividend portals provide extensive information on CVS Health.
At first glance, the key figures look good, even if they are Dividend yield comparatively low is. CVS Health is currently only 18th out of 21 stocks among the pharmaceutical stocks of the dividend alert. This is not a special placement now, but in the past the stock has rarely achieved higher values either.
If you are in the Pharma section looking at the rest of the candidates, there is currently Merck, C.R. Bart and Baxter are three sales candidates who may be exchanged with CVS Health.
Based on the currently calculated signal thresholds, you can see which share prices CVS Health currently has to reach in order to generate a buy signal or a sell signal. With the buy-signal you can see that CVS Health has already run a good distance into the buy range.
Finally, in this section, I can provide you with the dividend profile of DividendenAdel.de.
Historical data from CVS Health
Looking back at times gone by, there are a couple of issues with CVS Health. In practical terms, no more buy signal was generated between 1996 and 2010. The range between high and low valuation is also within a low range, which is quite common for very defensive values.
In the past, CVS Health shares were rarely really cheap to buy. Only since the Financial crisis it generated several buy signals. The share has been at a favorable level for many months.
However, the share has only been able to achieve a comparative valuation as it is today, twice. This is a good sign. In the last few years there have been several opportunities to put CVS Health in the depot. Right now, the share is again severely undervalued.
The dividend yield, which has been rising for a long time, does not suggest anything good about the share price. So let's look at the Share price since 2006 a little more precisely, because the falling prices should be visible here. Mostly because there are currently problems in the industry or at the company.
Can you think of what? Do you wonder a little too? How can it be that the share price has shown such a performance? How can the dividend yield increase continuously in the same time? To be honest, the share price puzzles me. I didn't expect that now. So we have to look at the dividend history of the last few years.
In the table are those Dividend increases since 2006 pictured. Back then an annual dividend of $ 0.1550 per share was paid. Today, in 2016, it's already $ 1.70. Unfortunately, this is no longer shown in the table. You are welcome to check the current figures at dividend.com.
I am slowly starting to see the whole picture at CVS Health. The company has raised its dividend very sharply in recent years. Since 2006 the annual dividend quadrupled. On average the Dividend increased by approx. 25% every year and that with a current one Payout ratio of only 29%!
And what did the share price do over this period? Of course, it has also increased a lot. From $ 25 in 2006 to $ 110 (at the top) Middle of last year. Wow, what a performance you might think. The bottom line is that it is only a four and a half times increase.
If the valuation of the share had remained constant over the years as it was in 2006, the share price should have increased threefold. The share price would then be today at over USD 275 stand. Unfortunately, it is not there, because the share price could not keep up with the sharply rising dividends.
This can now explain the initially inexplicable chart image between the rising dividend yield and the simultaneous rising share price. Usually, the stock price is more likely to go down as the dividend yield rises.
The questions that now need to be answered are:
When will CVS Health return to normal assessment? Another question may be when will CVS Health generate a sell signal again? When I look at the past few years, it can sometimes take a long time. For long-term oriented dividend investors this is to be seen positively, because as buy & hold investors we don't actually want to sell any shares.
With the dividend alarm strategy, very long time windows, from a buy signal to a sell signal, meanhigh three-digit returns which will be achieved in the end. Because during the entire period you collect the dividends, which continue to rise properly and are distributed quarterly, and the share price continues to rise slowly until it is overvalued again.
Using a Example extrapolation I would like to simulate the future scenario, which I consider realistic. I suspect that sooner or later the share price will follow the sharply rising dividends. In the long term, this leads to a normal and corresponding to the previous average Dividend yield.
The first step should be the Mean value can be achieved. For the final conclusion of the trade, there will certainly be a sell signal again. Based on the last time window between the sell signal and today's buy signal, I also calculate a period here of at least 10 years.
That doesn't mean, of course, that my scenario will happen in the same way. No, it can also turn out very differently. But the likelihood that the stock will be valued again on average is clear in my opinion more realistic, than that it is permanently undervalued and reaches a range that it has never reached before.
And even if the share behaves as it has in the past 10 years, i.e. sharply rising dividends and a rather sluggish share price, then this is not wrong and would still lead to a high total return on the investment - like the review of the last 10 years showed.
What would support a rather negative scenario would be a very high one today Payout ratio. So if CVS Health were to distribute almost all of the profits by now. This can lead to problems in the future with even the smallest drop in profits. With a payout ratio of less than 30%, CVS Health's profits could practically be halved and the dividend could remain stable and even increase moderately. In my opinion, this scenario is therefore unrealistic.
For my simulation I assume the following points. The stock was bought in March while I was writing the article. I have already bought the share for sample portfolio 3 because I am convinced of the dividend alarm strategy and all the factors identified today make me feel very positive for the future. If the share price continues to give the buy signal, I will buy more shares. Assuming the points mentioned and the dividend policy, nothing will change.
You can see the dividend increases of the past few years at the top of the article. The dividend has been increased by an average of around 25% per year since 2006. Even if the amount of the increases should still not be a problem with the currently low payout ratio of under 30%, I only use one for my simulation annual dividend increase of 10%. I'll build a good one with it Risk buffer a.
Every year in which the dividend is increased more than 10% I can be happy and if future dividend increases are less than 25% I have no reason to be sad.
As Time horizon As already mentioned, I am assuming the same period of time that the stock took from the last sell signal (2006) until today's buy signal (2016) to get. 10 years is a comparatively good time for this defensive stock.
Be in the simulation all rates in US dollars shown, whereby in the end only the overall performance is decisive for the result of the simulation.
Furthermore, I have assumed in the simulation that today's dividend yield will decrease from 1.70% by the time in 10 years to a value that, according to today's calculations, will decrease in equal steps Sell signal would correspond. Here you can now see the finished evaluation.
Did you take a good look at all the numbers? I will briefly explain to you what the table exactly represents. In the first column you can see the individual quarters up to the point in time in 10 years.
In the second column the share price is calculated - I didn't make it up. The share price is determined based on the forecast dividend and the assumed dividend yield. It is clear to me that the share price will not run so linearly in reality. Therefore it is only a simulation that shows what would happen if the numbers were within the expected range.
In Column 3 you can find the dividends that are paid out every quarter. The dividend increases once a year by 10%. At the bottom of the column you can see the cumulative dividends. That $ 28.87 is practically all of the dividends paid to you over the 10 years.
At this point, please imagine what the numbers would be if CVS Health continued to do its job Increase dividend by 25% per year would. I'll tell you later what kind of performance could be possible.
In Column 4 you can find the dividend yield. Here I have assumed that the current dividend yield of 1.70% will steadily decrease and after 10 years it will return to a level that would correspond to a sell signal based on today's calculations.
In the last column you can read off the respective performance. This figure does not include the distribution dividends. The value should only serve as a guide if you would like to read a result between the years.
Now we come to the Bottom line. The result initially shocked me for a moment. 829% in 10 years with this defensive stock should be possible? And that although I was only expecting an annual dividend increase of 10% instead of 25%?
The majority of the performance is achieved through the share price. Because it is assumed that this will finally follow the recent sharp rise in dividends. So not another one for the coming years Imbalance is assumed, I expected a lower dividend increase.
Now it should also be clear that there is no CVS Health share price of 900 euros will give. As in the past, it will always be in the future Stock splits give. This is particularly common among American companies as soon as a share sustained above the USD 100 mark. So practically the value that CVS Health is now at.
Based on the performance of the last few years, I can a split of up to 1: 4 to introduce. The share price would be a good 25 USD again and instead of one share you would have four times as many shares in your portfolio. What has already been statistically proven several times is the fact that shares perform better than optically expensive shares after a split, due to the lower share price and for purely psychological reasons.
Even if a Stock split just a visual change means, I can very well imagine that the share price will then largely catch up with the growth of the dividend at the latest.
Finally I would like to two alternative outcomes speak to.
The first result I already mentioned it. How would the stock perform if the dividend continued with? 25% instead of 10% per year is raised. You can see the result on this small excerpt.
I know it does a little speechless. At the same time, however, it also shows the enormous potential that lies in the profit distributions. This can be increased if the dividend increases continue to be made to the same extent and the share price follows them completely and not, as recently, lags behind many times over. A low payout ratio with further increasing profits, such a scenario is quite possible. For me, however, this of the three scenarios is on most unrealistic.
The second result what interests me is how the stock would perform if it behaved the same as it has over the past 10 years. So the dividend will continue to increase by 25% per year and the share price will only increase 4.5 times in the coming years. Here is the result.
At first glance, this result seems sobering. But at least if the development remains the same, a value of 414% can be achieved within 10 years. That is still 41.4% per year, if you want to calculate it that way. Even that sounds unrealistic, I know, but that's how the stock has performed over the past 10 years.
All three scenarios primarily show one thing: with CVS Health there is definitely one above-average return possible. A return that cannot easily be achieved elsewhere with a defensive stock. Even if the worst possible scenario happened (414%) and pessimists still assume that some factors only make 50% of the performance possible, then I still stay lucrative 20% per year with a defensive share from the promising one Health Care Industry.
My personal favorite is scenario 1(829%). I will also be actively following this with the CVS Health share in sample depot 3 and will give an update here in the blog every now and then.
Simply broken down, this would mean that the share would have to put in a very high double-digit performance in the year. Of course, that sounds completely unrealistic. This is also clear to me. But the entry with the help of the dividend alarm in a share that generates a buy signal and then stick with it until a sell signal is generated again, in practice means exactly such high returns.
In the end, I don't care at all whether the share price or the dividend have carried the majority of the performance after XX years. The overall result is important to me.
Using the example of W.W. Grainger share I had already shown it. Here again the excerpt from the article.
There were two trades in the W.W. Grainger share. These were now running 17 months and 39 months not even as long as in our example assumed today. Nevertheless, the trades show that it is very lucrative to wait for a buy signal and then hold the stock until a sell signal.
At the W.W. Grainger shares were monthly returns of up to 5.88% possible. These values extrapolated to the year come pretty close to the scenarios presented here.
More articles on the dividend alert
I hope you enjoyed your look at CVS Health stock via the dividend alert strategy and understood the conclusions. I know a lot of investors check a number of key figures and values and compare stocks with other stocks and create rankings and much more. Anyone can do that here, but this is also very time-consuming and usually the results do not give a really clear picture.
When I've found a good company and call out the numbers that now is a good time, I'll be happy to take it. In addition to a few key figures, I also like the historical considerations as well as the current news situation most importantly.
How exactly my workflow during a purchase phase of the Dividend Alert Indicator looks like, you will find out in this series of articles.
The stock that I examined next is the best stock in the world - the Altria stock. In the article I examine the price at which I can sell the Altria share dearly.
Yes, you've read that correctly, I am about to sell my Altria shares. But first I check the historical values and think about what else can be gotten out of the share price. Perhaps, analogous to the purchase of CVS Health, I can present a realistic sales scenario.
Link Tips: Long Term Investing, Commodity Super Cycle, Warren Buffett, Investment Rule, Dividend Strategy, Total Dividend, Alex Fischer, CapTrader, Webinar
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