Written by Summary
Cigna has been paying a token dividend of 4 cents annually.
Last March, the company has shifted to a quarterly meaningful dividend.
We are approaching the company’s expected dividend increase, and it’s time to consider the company for dividend growth portfolios.
Slaven Vlasic/Getty Images Entertainment Introduction
I am always looking for new opportunities for investment for dividend growth investors. A new opportunity can be Cigna ( CI ), the global health services company. The company has initiated a quarterly dividend last March, and it seems like the company has shifted its policy regarding returning capital to shareholders.
The company that used to focus on buybacks has added a dividend, and after four quarters it is time for the dividend to grow. The company is also growing, and since it is under the radar for most dividend growth investors, it is time to expose more investors to it.
I will analyze the company using the graph below, which represents my methodology for analyzing dividend growth stocks. I am using the same methodology to make it easier for me to compare analyzed stocks. I will look into the company’s fundamentals, valuation, growth opportunities, and risks. I will then try to determine if it’s a good investment. (Graph made by author)
According to Seeking Alpha’s company overview, Cigna provides insurance and related products and services in the United States. Its Evernorth segment provides a range of coordinated and point-solution health services. The company’s U.S. Medical segment offers commercial products and services. Its International Markets segment offers health coverage, hospitalization, dental, critical illness, personal accident, term life, medical cost containment, and variable universal life products, as well as health care benefits to mobile employees of multinational organizations. (Source: Wikipedia.org) Fundamentals
Revenues have increased significantly over the last decade. The increase in revenues is attributed to both organic growth and acquisitions. The most prominent increase in revenues can be seen after the company acquired Express Scripts at the end of 2018, an acquisition that has turned it into a giant healthcare player, and not just an insurer. According to Seeking Alpha, analysts covering the company expect it to grow revenues at a mid- to high-single-digits growth rate. Data by YCharts EPS has been growing faster as well, but not as fast as the revenues. EPS growth was fueled by organic growth, and by acquisitions. However, it is slower than the top-line growth since the company issued shares to finance the acquisition. The company in its investor presentation guides form medium-term EPS growth of 10%-13%, and this is in line with the estimates of analysts covering the company according to Seeking Alpha. Data by YCharts The dividend as the graph below shows is new. The company has paid a token dividend for over a decade and changed its policy in 2021. It shifted from annual dividend to quarterly dividend and increased it from $0.04 to $4 annually. The current dividend is extremely safe with a payout ratio below 20%. Investors should expect a dividend raise in January as the company will declare its March 2022 dividend. Data by YCharts The number of shares outstanding has increased over the last decade as a result of the acquisition of Express Scripts. The graph below shows that besides the acquisition, the company is constantly buying back shares. The company lowers its share count by roughly 3%-4% annually, and its current buyback plan is covering roughly 4% of the share count. Data by YCharts Valuation
The P/E ratio is very low as Cigna is trading for 10 times its 2021 earnings. The current valuation is in line with the company’s valuation in the past twelve months. This is one of the reasons for the aggressive buybacks that the company is executing. At 10 times earnings when the broader market is at an all-time high, Cigna is a compelling opportunity for investors. Data by YCharts The graph below from FAST Graphs shows a similar picture. The company is growing at the same pace it grew in the past decades. However, while it maintains a similar double digits growth rate, the current valuation is significantly lower than the long-term valuation that has been 12.2. Investors have an opportunity to enjoy multiple expansions as Cigna returns to its historical valuation. (Source: fastgraphs.com)
To conclude, Cigna offers investors a great combination between extremely solid fundamentals and an attractive valuation. The top- and bottom-line growth fuel buybacks and dividends. The decent growth in dividends in 2021 is expected to continue in 2022, and this entire […]
Written by Summary