This High-Yield Dividend Stock Is Staging a Comeback. Should You Buy Shares Now?
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When a “boring” healthcare stock posts a 7% surge intraday, investors take notice. That’s exactly what happened when CVS Health delivered its second-quarter 2025 earnings on July 31. The healthcare giant’s adjusted earnings of $1.81 per share crushed analyst estimates of $1.45, while revenue climbed 8.4% year-over-year to $98.92 billion.
This impressive beat comes at a time when the S&P 500 Healthcare Index ($SRHC) fell 12% over the past year, significantly trailing the broader S&P 500 Index’s ($SPX) gain of 18.2%. CVS itself endured a particularly volatile 2024, cutting its earnings guidance three times and watching its stock plummet over 40% as medical costs in its Aetna insurance division spiraled higher than expected.
Yet, with its latest results stirring up fresh optimism, it’s worth asking – is this high-yield dividend stock at the start of a legitimate comeback, or was the Q2 surprise – like last Thursday’s intraday rally – just a fleeting moment of glory? Let’s dive in.
CVS Health (CVS), a retail pharmacy, healthcare services, and insurance company, boasts a market capitalization of approximately $79 billion. The company’s high-yield credentials are anchored by a robust annual dividend rate of $2.66, delivering shareholders an above-market dividend yield of 4.26%, and elevating CVS into the upper echelon of dividend stocks.
Shares have surged 37.1% year-to-date, but CVS stock trades at just 10.05x forward adjusted earnings – a generous discount to the healthcare sector median of 16.86x – and boasts a similarly low price/earnings-to-growth (PEG) ratio of only 0.59x. This lower multiple suggests the market still underappreciates CVS’s earnings momentum and long-term growth prospects.
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In the July 31 Q2 report, total revenues climbed to $98.9 billion, marking an 8.4% year-over-year gain that eclipsed analysts’ forecasts. While second-quarter GAAP diluted EPS landed at $0.80, down from $1.41 a year earlier, this was mainly due to two significant litigation charges tied to legacy business issues.
Perhaps more importantly, management reported $6.5 billion in cash flow from operations year-to-date, reinforcing both dividend security and strategic agility. The company’s earnings power is being driven by improved performances in its Health Care Benefits and Pharmacy & Consumer Wellness segments, offsetting short-term headwinds in Health Services.
CVS inked a pivotal deal with Rite Aid, agreeing to acquire select prescription files and store locations across 15 states. This acquisition stands to significantly broaden CVS’s market reach while promising meaningful operational synergies. This could be a crucial lever as CVS aims to build scale and streamline retail pharmacy operations at a time when consumer patterns are evolving fast.
In another move to future-proof its business, CVS Health committed a staggering $20 billion investment over the next decade to overhaul healthcare delivery, with a focus on harnessing advanced technology and achieving real interoperability across its ecosystem. This is a long-term wager on connecting care in ways that competitors haven’t matched.
May 2025 brought another headline-worthy shift: CVS Caremark struck an exclusive partnership with Novo Nordisk (NVO), designating Wegovy as the preferred GLP-1 weight loss drug on all Caremark standard formularies starting July 1. This decision impacts tens of millions of Caremark beneficiaries and, at the same time, removes Eli Lilly’s (LLY) Zepbound from CVS’s standard list. CVS Pharmacy is now also the inaugural retail pharmacy in Novo’s NovoCare network, offering the in-demand Wegovy at a sharply competitive $499 per month for cash-paying customers across all 9,000 CVS locations.
The average consensus among Wall Street analysts is strikingly bullish, forecasting earnings per share of $1.42 for the current quarter, up sharply from $1.09 a year ago, and $6.37 for the full fiscal year, compared to $5.42 last year. That’s a growth rate estimate of +30.28% for the quarter and +17.53% for the year,.
Backing up this optimism, CVS management hiked its outlook, boosting the full-year adjusted EPS guidance to a range of $6.30 to $6.40 from a prior $6.00 to $6.20. At the same time, the company expects at least $7.5 billion in operating cash flow, up from its earlier $7.0 billion forecast, and offered refined GAAP diluted EPS guidance between $3.84 and $3.94.
Perhaps most compelling for prospective investors, nearly three-quarters of the 23 analysts in coverage rate CVS a “Strong Buy.” The mean analyst price target is $79.41, pointing to a promising 29.2% upside potential from CVS’s current price.
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With the majority of analysts labeling CVS a “Strong Buy” and nearly 30% upside baked into price targets, it’s hard to ignore the opportunity here. CVS checks the boxes for value, growth, and high yield, all wrapped in a comeback narrative the market loves. At current levels, the stock could be a compelling value pick for yield hunters as its turnaround gains traction. However, given its placement across policy-sensitive sectors like healthcare and insurance, investors should be prepared for potential headline-driven volatility along with that passive income.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
