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Here are three solid reasons why investing in $CVS Health(CVS)$ and holding it for the long term is a great move:
1.CVS Health is bigger than you think!
You might be familiar with CVS Health's chain of pharmacies with over 9,000 stores, but there's more to it! Last year, the company reported a total adjusted operating profit of $17.5 billion,with just $6 billion coming from the pharmacy and consumer health segment.
Did you know CVS Health also owns Aetna, one of the largest health insurance companies in the US, with over 25.7 million members? Operating profit in the company's health and benefits division fell 12% last year, but it was still $5.6 billion.
Finally, the company's healthcare services segment, which includes the pharmacy benefit management PBM business, is the most profitable, with operating profit of about $7.3 billion last year.
2.The Aging Population
The aging population is a trend that's not going away. Over the past 100 years ending in 2020, the growth rate of the elderly population aged 65 and above was five times that of the total population, and it's still accelerating.
From 2010 to 2020, the elderly population surged by 38.6% to 55.8 million. By 2029, the youngest Baby Boomers will turn 65, meaning that every day, at least 10,000 more people will be eligible for Medicare coverage. That's a lot of people who'll need healthcare services!
3.Fast-Growing Dividends
CVS Health froze its quarterly dividend payments a few years ago to fund the $70 billion Aetnaac quisition, so they ′ve only been increasing their dividend for three years consecutively. Still, the company's dividend growth over the past 10 years is a whopping 142%.
Rising Health care costs and recent acquisitions such as $Signify Health, Inc.(SGFY)$ have pressured profits, resulting in CVS Health's free cash flow falling sharply to $10.4 billion last year from its 2022 peak, but that's still enough money to fund the company's larger dividend growth in coming years.
Risk warning
Giant healthcare companies like CVS Health and $UnitedHealth(UNH)$ have successfully integrated various medical businesses, but that's also drawn the attention of regulators. For instance, in February this year, the US Justice Department launched an antitrust investigation into UnitedHealth Group.
In addition, CVS Health's PBM business is facing competition from Mark Cuban's DTC pharmacies, Cost Plus Drugs, and even $Amazon.com(AMZN)$ .
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