How To Significantly Increase Your CVS Income

Eli Inkrot profile picture
Eli Inkrot
8.5K Followers

Summary

  • CVS does not appear to be a great income generator at the moment.
  • However, this notion misses a couple of key concepts.
  • The first relates to the potential for outsized dividend growth.
  • And the second demonstrates how you can "manufacture" a much higher cash flow stream from owning or potentially owning shares.

At first glance CVS (NYSE:NYSE:CVS) may not appear to be a great income generator. The company is in the middle of paying out its fourth straight $0.425 quarterly dividend or $1.70 per share on an annual basis. With a share price near $87.50, that equates to a "current" yield of just 1.9% - hardly the type of thing that an income investor would get excited about.

Yet I would like to make a variety of points. For one thing, there's a good deal of potential. The company's dividend yield has never been especially high, but the rate of growth has been impressive: a 21% increase last year, a 27% boost the year prior, a 22% gain in 2013 and so on.

Now CVS has a target of paying out 35% of its earnings by 2018. Given that the current payout ratio is below this on an adjusted basis, to go along with double-digit anticipated earnings growth, it stands that the dividend could continue to grow at a rather robust pace.

Often there is an underrated factor with fast growing dividends. Sometimes the capital appreciation component can mask the impressive income results as the starting yield remains low, but the dividend just keeps jumping up year after year.

So one way to think about significantly increasing your income from CVS is to simply hold on. A lot of people are happy with marginal raises after each work anniversary. Here you have an opportunity to see double-digit increases for years, and the starting yield, while not high, is already in line with the average large-cap company.

Of course, there are some other ways to significantly increase your cash flow from CVS. You could think about selling speculation (calls) or selling insurance (puts) on the security. Both scenarios will give you upfront funds for expressing a given sentiment.

This article was written by

Eli Inkrot profile picture
8.5K Followers
Eli Inkrot is a writer. Check out his website: thecurrencyoftime.wordpress.com, his articles here on Seeking Alpha or his book - "You Don't Have A Money Problem" - on Amazon.com. Additionally, here is a quick bio: Eli has held the title of Vice President and Portfolio Manager at EDMP Inc. - a money management firm - along with Vice President for F.A.S.T. Graphs - a financial software company. Prior to that, he began his investment career as an analyst in private real estate for a public pension fund. During his time in real estate he was the lead for a variety of accounts with net asset values totaling nearly two billion dollars. Eli received a Master’s in Finance from the University of Tampa where he earned “highest honors” whilst receiving the distinction of being named the “most outstanding graduate student.” He also holds an undergraduate degree in Economics and Business Administration from Otterbein University, graduating “magna cum laude” with distinct honors in each major. During his tenure at Otterbein, Eli was a member of the varsity golf team, held the departmental Senator position for Business, Economics and Accounting and studied abroad in the Netherlands.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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