News

Dividend stocks are often in high demand due to the passive income they provide and their ability to deliver superior returns over long periods. So finding excellent income stocks to buy on the dip is a dream come true for many investors -- but only if the company in question has what it takes to rebound.

Is that the case for CVS Health (NYSE: CVS)? The healthcare giant has lagged the market over the past year. Keep reading to discover whether there are better days ahead for the pharmacy chain.

What's going on with CVS Health?

CVS Health has faced multiple headwinds over the past 18 months. First, the company isn't generating as much revenue from coronavirus vaccines as it once did. It's suffering the same fate as many other corporations in this market. And there's more.

Last year, CVS Health lowered its guidance multiple times -- a move the market doesn't like -- and did the same for its 2024 full-year guidance. CVS Health now expects earnings per share (EPS) of at least $7.06, down from projected EPS of at least $7.26.

The fact that CVS Health has done this repeatedly over the past year goes beyond lower-than-expected revenue. It points to uncertainty within at least some of the company's operations.

Further, the healthcare giant lost some business from a partner last year. Health insurer Blue Shield of California decided to diversify its list of Pharmacy Benefits Managers (PBM). Whereas it used to rely primarily on CVS Health to get prescription medicines for its patients, Blue Shield now has a list of five different pharmacies with which it does business.

That list still includes CVS Health, but the pharmacy chain lost some business due to Blue Shield's initiative. This announcement led to CVS Health's stock price dropping by more than 10%.

Why long-term investors should hold on

There's no question that CVS Health is going through turbulent times. Every company does. The more important thing for investors is to focus on CVS Health's long-term prospects. Does the healthcare specialist still have what it takes to deliver solid results over long periods? In my view, the answer is yes. Here are a few reasons why.

First, CVS Health has spent years creating a trustworthy -- and trusted -- brand name in one of the industries where that matters the most -- healthcare. It's literally a matter of life or death.

Second, CVS Health's pharmacy chains have become integral parts of hundreds of communities across the U.S., where many patients have been going to fill their prescriptions for years. It's not easy to change such entrenched habits. Second, CVS Health has created an ecosystem that allows it to offer comprehensive and complementary services to patients, so it isn't just a pharmacy chain.

Third, it's an insurer through Aetna in the primary care business and also looking to start developing generic drugs through a new subsidiary called Cordavis. The demand for the services CVS Health provides will only increase with a rapidly aging population. That puts the company in an enviable position to continue serving patients while delivering solid results for a long time.

In addition, CVS Health has been a relatively stable and moderately growing business over the past decade.

Though past results don't guarantee a promising future, investors shouldn't base their investment decisions on the company's poor performance over the past 18 months, either -- zooming out helps see things in perspective. CVS Health's dividend profile is pretty strong.

The company has increased its payouts by just under 142% in the past decade. CVS Health offers a dividend yield of 3.81%; the average for the S&P 500 is 1.35%. The company's cash payout ratio is just 30.13%, so it has plenty of room for more dividend hikes.

Though it's hard to say when CVS Health will get out of its recent slump, the company's long-term prospects still look attractive, especially for investors looking for a steady, reliable dividend payer. CVS Health is it.

Should you invest $1,000 in CVS Health right now?

Before you buy stock in CVS Health, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and CVS Health wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.

*Stock Advisor returns as of April 22, 2024

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.