Dividend Aristocrats In Focus: Cardinal Well being, Inc.

Up to date on February twenty ninth, 2024

In the case of dividend development shares, not many shares can surpass the Dividend Aristocrats. The Dividend Aristocrats are a gaggle of 68 shares within the S&P 500 Index, with 25+ consecutive years of dividend will increase. These corporations have managed to extend their dividends yearly with out exception, even throughout recessions.

The Dividend Aristocrats have a confirmed means to lift their dividends even throughout financial downturns. Now we have created a full listing of all 68 Dividend Aristocrats, together with essential metrics similar to price-to-earnings ratios and dividend yields.

You’ll be able to obtain an Excel spreadsheet with the total listing of Dividend Aristocrats by clicking on the hyperlink under:

Disclaimer: Positive Dividend just isn’t affiliated with S&P World in any manner. S&P World owns and maintains The Dividend Aristocrats Index. The knowledge on this article and downloadable spreadsheet relies on Positive Dividend’s personal evaluation, abstract, and evaluation of the S&P 500 Dividend Aristocrats ETF (NOBL) and different sources, and is supposed to assist particular person traders higher perceive this ETF and the index upon which it’s primarily based. Not one of the data on this article or spreadsheet is official knowledge from S&P World. Seek the advice of S&P World for official data.

On this article we’re going to look extra deeply at healthcare distributor Cardinal Well being (CAH).

With 36 consecutive years of dividend will increase, the corporate has clearly confirmed to be a dependable dividend development inventory, which speaks to the resilience of Cardinal Well being’s enterprise mannequin.

Enterprise Overview

Cardinal Well being, based in 1971, is likely one of the “Massive 3” drug distribution corporations together with McKesson (MKC) and AmerisourceBergen (ABC). Cardinal Well being serves over 24,000 United States pharmacies and greater than 85% of the nation’s hospitals.

The corporate has two working segments: Pharmaceutical and Medical. The Pharmaceutical phase is by far the corporate’s largest, because it represents almost 90% of complete income. The pharmaceutical phase distributes branded and generic medicine and shopper merchandise. It distributes these merchandise to hospitals and different healthcare suppliers.

In the meantime, the medical phase distributes medical, surgical, and laboratory merchandise to hospitals, surgical procedure facilities, medical laboratories, and different service facilities.

On February 1st, 2024, Cardinal Well being launched outcomes for the second quarter of fiscal yr 2024 for the interval ending December thirty first, 2023. For the quarter, income grew 12% to $57.4 billion.

On an adjusted foundation, the corporate’s posted earnings of $562 million, or $1.82 per share, in contrast favorably to earnings of $467 million, or $1.32 per share, within the prior yr. Income outcomes have been $490 million forward of estimates whereas adjusted earnings-per-share have been $0.22 higher than anticipated.

Supply: Investor Presentation

For the quarter, Pharmaceutical gross sales of $53.5 billion and phase revenue of $518 million each represented development of 12% from the prior yr. This phase as soon as once more benefited from larger gross sales to current clients and power in model and specialty prescribed drugs.

Income for the Medical phase of $3.9 billion was a 3% enchancment yr over-year whereas phase revenue of $71 million in contrast very favorably to $17 million final yr. This phase benefited from excessive demand in at-home options and distribution.

Development Prospects

Cardinal Well being offered up to date steerage for fiscal yr 2024 as effectively, with the corporate now anticipating adjusted earnings-per-share in a variety of $7.20 to $7.35 for the fiscal yr, up from $6.75 to $7.00 and $6.50 to $6.75 beforehand.

On the midpoint, this could be a 25.7% enchancment from the prior yr.

Supply: Investor Presentation

Cardinal Well being has grown earnings-per-share by a mean compound charge of 4.7% and 6.6% during the last 10- and five-year durations of time, respectively. Since fiscal 2014, the dividend has grown at 5.2% yearly, however this has slowed to 0.9% for the final 5 years. Shifting ahead we do anticipate barely decrease development charges.

We’re forecasting 3% intermediate-term earnings development, from administration’s steerage. Our subdued development charge view might change into conservative, particularly with the corporate’s penchant for share repurchases.

Aggressive Benefits & Recession Efficiency

The largest aggressive benefit for Cardinal Well being is its distribution functionality, which makes it very troublesome for rivals to efficiently enter the market.

Cardinal Well being distributes its merchandise to roughly 90% of U.S. hospitals. It serves greater than 29,000 U.S. pharmacies, in addition to over 10,000 specialty doctor workplaces and clinics. It additionally manufactures and distributes greater than 50,000 sorts of Cardinal Well being medical merchandise and process kits. The corporate’s residence healthcare enterprise serves over 3.4 million sufferers, with greater than 46,000 merchandise.

As well as, Cardinal Well being operates in a secure trade with excessive demand. The corporate ought to stay steadily worthwhile, as there’ll at all times be a necessity for pharmaceutical merchandise to be distributed.

Right here’s a have a look at Cardinal Well being’s earnings-per-share through the Nice Recession:

• 2007 earnings-per-share of $3.41
• 2008 earnings-per-share of $3.80 (11.4% improve)
• 2009 earnings-per-share of $2.26 (40.5% decline)
• 2010 earnings-per-share of $2.22 (1.8% decline)

Whereas a part of that is recession-related, remember that Cardinal Well being’s monetary outcomes have been materially impacted by its spinoff of CareFusion Company, which was accomplished in 2009. Regardless of this spinoff, the corporate’s phase revenues, phase earnings, and dividends continued to develop throughout this time.

Since folks will at all times want their drugs and healthcare merchandise, whatever the financial local weather, Cardinal Well being might be thought-about extra recession-resistant than the typical firm.

Valuation & Anticipated Returns

Primarily based on anticipated adjusted earnings-per-share of $7.28 for fiscal 2024, and a share worth of ~$110, Cardinal Well being is at present buying and selling at a P/E ratio of 15.1.

The inventory has traded palms with a mean P/E ratio of 13.6 instances earnings relationship again to 2014. Nonetheless, this was throughout a time when development was rather more sturdy. Now we have used a a number of of 10 instances earnings as a beginning place for honest worth in recognition of our decrease anticipated development charge.

A declining P/E a number of might scale back annual returns by 7.9% per yr over the following 5 years.

Along with adjustments within the valuation a number of, future returns might be generated from earnings development and dividends. We anticipate Cardinal Well being to develop earnings-per-share by 3% per yr, primarily from income development and share repurchases.

Lastly, the inventory has a present dividend yield of 1.8%. Whereas the tempo of dividend development has slowed, the beginning yield is affordable for a corporation with such a powerful observe document.

As a Dividend Aristocrat, Cardinal Well being is more likely to proceed elevating its dividend every year. Furthermore, the dividend seems safe, with a projected dividend payout ratio of roughly 27% for fiscal 2024.

Placing all of the items collectively – common development and dividend yield offset by a significant valuation headwind – our anticipated complete return for Cardinal Well being is -3.1% per yr over the following 5 years. The destructive anticipated charge of return qualifies Cardinal Well being inventory as a promote proper now.

Remaining Ideas

Cardinal Well being is a Dividend Aristocrat that has elevated its dividend for over 35 years. The corporate continues to develop income. And, the corporate has put in place a lot of initiatives that ought to return it to constructive earnings-per-share development going ahead.

Excessive-quality corporations like Cardinal Well being have withstood troublesome durations earlier than and can accomplish that once more. The historical past of the corporate, its dividend historical past, and its present yield of 1.8% makes the inventory an fascinating alternative for earnings traders. Complete anticipated returns stay very low, nevertheless, making the inventory a promote in the intervening time.

Moreover, the next Positive Dividend databases comprise probably the most dependable dividend growers in our funding universe:

For those who’re in search of shares with distinctive dividend traits, think about the next Positive Dividend databases:

The key home inventory market indices are one other stable useful resource for locating funding concepts. Positive Dividend compiles the next inventory market databases and updates them month-to-month: