CVS Jumps Into Dividend Hikes and Larger Buybacks

CVS said that some of its cash will be used to invest in the business via strategic bolt-on acquisitions, and the rest of its cash will be returned to shareholders and will be used for “value-enhancing share repurchases.” The 27% dividend increase will be a hike to $0.35 per share per quarter, versus a prior $0.30 rate. This comes to a $1.40 annualized payout, and the yield is moving from roughly 1.30% up to 1.55%.

CVS also announced a new $10 billion that can be used for share buybacks. As far as the $10 billion is concerned, the plan is effective immediately and is expected to be completed over a multiyear period. The company said that this plan is to be combined with approximately $2.7 billion that remains on the share repurchase program approved by the board of directors back in 2013. All in all, this will makes a total of approximately $12.7 billion available for share repurchases. CVS now has a market cap of nearly $104 billion.

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Other issues covered were expectations of free cash flow to be between $5.9 billion and $6.2 billion, and cash from operations expected to be between $7.6 billion and $7.9 billion. On guidance, CVS said:

The company expects to deliver adjusted earnings per share from continuing operations of $5.05 to $5.19 in 2015, an increase of 12.5% to 15.75% (excluding the loss on early extinguishment of debt in 2014), and GAAP diluted earnings per share from continuing operations of $4.77 to $4.91 per share. The company also expects to generate substantial free cash flow of $5.9 billion to $6.2 billion in 2015, and cash from operations of $7.6 billion to $7.9 billion in 2015. This guidance assumes the completion of $6 billion in share repurchases during 2015.

For 2015, Thomson Reuters has the consensus estimates at $5.11 in earnings per share and $146.1 billion in revenues.

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CVS shares closed at $89.87 on Monday, and the stock was indicated just above $90 in the early hours of Tuesday. CVS has a 52-week trading range of $64.95 to $92.00 and a consensus price target of $92.30. Investors may take note that the highest analyst price target at the time the news broke was $103.00 per share, while the lowest analyst price target for the stock was all the way down at $70.