Recent Buy – December (Part 1)

On 29th November, I bought 68 stocks of CVS (CVS) at an average price of $73.92.

Total money invested is $5,026.31.  Dividend on this purchase yields about 2.71%.

This purchase will increase my annual dividend income by about $136.0 ($0.50 paid quarterly, in month of January April July and October). Dividends will not be reinvested automatically. With this purchase, now I own total 83 stocks of CVS at an average cost of $73.22.

I expect CVS to announce dividend increase for 2018 by 8 to 12%.

My investment thesis hasn’t change a lot since my last post of CVS purchase, except now my initial assumption of Aetna acquisition has been given a little more clarity on the recent news of how brick-and-mortar CVS stores will be used to enter into a little different market, pending close of Aetna acquisition.

Since I recently posted my thoughts on CVS here, I am not planning to add a lot of details on this post except a few important ones as listed below:

Pretax income has increased from $6.32 B in 2012 to $8.64 B in 2016. However, first three quarters of 2017 totals only $ 5.45 B which means its highly likely that the 2017 pretax income will be about half a billion less compared to prior year. I like the price when good quality company is trading at less than 10 times pretax income when compared to market cap. Current market cap is about $ 75 B, which is little better than my target and stands roughly at 9 times pretax income.

Average EBIT (Earnings before Interest and Tax) for last three years is about 9.2 B, which is in-line with current year EBIT expectation (assuming about 3B EBIT in the upcoming forth quarter results). Current Enterprise Value of the company is about $101 B. Hence, EBIT/EV is about 9.11 %, little less than my target of minimum 10%, which isn’t grossly bad for this overvalued market.

Outstanding shares have reduced from 1.28B in 2012 down to 1.08 B in 2016, at a rate of about 2.8% annual reduction in share count, in addition to dividend yield of about 3.0% (assuming minimum 8% increase announcement in a couple of weeks). Outstanding shares have been further reduced from 1.08 B down to 1.02 B just within first three quarters of 2017.

What are your thoughts on this purchase ? What are the stocks you are buying or looking to add ?

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