We recently compiled a list of the 10 Best High-Yield Dividend Stocks To Invest In. In this article, we are going to take a look at where CVS Health Corporation (NYSE:CVS) stands against the other high-yield dividend stocks.
Dividend stocks have been investors’ favorites for a long time now. Over the years, these equities have performed better than the broader market. That said, when it comes to dividend investing, opinions often split down the middle between those seeking high yields and those favoring dividend growth. Though analysts recommend buying stocks with proven tracks of dividend growth, the appeal of high yields is hard to ignore. According to analysts, investors should steer clear of yield traps and focus on companies that consistently increase the value returned to shareholders. However, those advocating yields have plenty to say about the significance of dividend yields.
Also read: 12 Best Fortune 500 Dividend Stocks To Buy Right Now
One such example is a report published by Newton Investment Management. According to the report, high-yield dividend stocks outperformed the broader market during high inflationary periods between 1940 and 2021. The report also revealed that investment portfolios with high-yield dividend stocks outperformed those with low or no dividends in terms of value-weighted performance. High-yield portfolios surpassed low-yield ones by 199 basis points and zero-yield portfolios by 330 basis points. While this result provides useful information, it doesn’t offer details about the market conditions at the time, giving only a broad picture of high-yield stock performance. Analysts have paid close attention to how dividend stocks perform during market volatility, as the need for consistent income becomes more pronounced in such times. As a result, they suggest considering high-yield stocks only if these companies also have a strong history of dividend growth.
Dan Lefkovitz, a strategist for Morningstar Indexes, made the following comment about extremely high yields in the firm’s recent report:
“It’s really critical to be selective when it comes to buying dividend-paying stocks and chasing yield. Looking for the most yield-rich areas of the market can often lead you into troubled areas and dividend traps—companies that have a nice-looking yield that is ultimately unsustainable. You have to screen for dividend durability and reliability going forward.”
That said, high yields aren’t automatically a bad sign. In fact, dividend yield plays an important role when investing in dividend stocks, as it shows how much income an investor can expect relative to the stock’s price. However, to fully benefit from high yields, other factors like the company’s cash flow, payout ratio, and dividend growth must also be considered. If these metrics are strong, high-yield stocks can still be appealing. Some reports have pointed out the long-term advantages of high-yield stocks, noting that as dividend yields increase, returns generally rise, and risk decreases. Hartford Funds conducted research factoring in annualized standard deviation, which measures a portfolio’s return volatility, with a higher standard deviation indicating greater historical risk. The report found that from December 1969 to March 2024, high-dividend portfolios delivered an annualized return of 12.3%, mid-dividend portfolios 10.5%, and low-dividend portfolios 9.7%. The annualized standard deviations for these portfolios were 14.1%, 16%, and 20.8%, respectively.
The ideal situation would be when dividend growth and high yields go hand in hand, as many companies have demonstrated that this is achievable. With that being said, we will now take a look at some of the best dividend stocks with high yields to invest in.
Our Methodology:
For this list, we scanned Insider Monkey’s database of 900 hedge funds as of Q3 2024 and picked dividend stocks that have yields above 4%, as of January 20. The stocks are ranked in ascending order of hedge fund investors having stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A row of shelves in a retail pharmacy, demonstrating the variety of drugs and over-the-counter products.
CVS Health Corporation (NYSE:CVS)
Number of Hedge Fund Holders: 63
Dividend Yield as of January 20: 5.06%
CVS Health Corporation (NYSE:CVS) is an American leading health solutions company that provides advanced health care from pharmacy services and health plans to health and wellness. The company posted strong earnings for Q3 2024, with revenue totaling $95.4 billion, marking a year-over-year increase of over 6.3%. The results were driven by strong performance in the Health Services and Pharmacy & Consumer Wellness segments. However, they also emphasized the need for a unified approach across the company to address the macroeconomic challenges impacting the Health Care Benefits segment.
CVS Health Corporation (NYSE:CVS) is generating strong returns in 2025, surging by more than 19% since the start of the year. However, the stock is down by nearly 29% in the past year. The main cause of the decline in the company’s stock value is its Pharmacy and Consumer Wellness division, where the anticipated benefits of integrating this segment with the health businesses have not yet materialized. The adjusted operating income for this division has dropped from $7.26 billion in 2021 to an expected range of $5.70-$5.75 billion in 2024. In addition, front-store revenue is projected to decrease by 6.2%, while the online segment faces increasing competition from major players like Amazon.
CVS Health Corporation (NYSE:CVS) is a solid dividend payer because of its cash position. The company generated $7.2 billion in operating cash flow in the first nine months of the year. It ended the quarter with $6.9 billion available in cash and cash equivalents. It is one of the best dividend stocks on our list as the company has never missed a dividend since 1997. It currently pays a quarterly dividend of $0.665 per share and has a dividend yield of 5.06%, as of January 20.
Insider Monkey’s database of Q3 2024 showed that 63 hedge funds held stakes in CVS Health Corporation (NYSE:CVS), up from 60 in the previous quarter. These stakes are worth over $4.2 billion.
Overall CVS ranks 4th on our list of the best high-yield dividend stocks to invest in. While we acknowledge the potential for CVS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CVS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stock To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap
Disclosure: None. This article is originally published at Insider Monkey.
