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One billion: that's how many prescriptions pharmacy giant
CVS Caremark(CVS - Get Report) fills each year. There's safety in those numbers, at least for CVS shareholders. The firm has consistently outperformed its pure-play retail pharmacy peers, delivering enviable net profit margins and paying out a decent dividend throughout the financial roller coaster of 2007 and 2008. But CVS' income statement has grown faster than its dividend payout has -- and I think that the firm is ready to hike its 16.25-cent quarterly dividend.
While CVS is best known to consumers for some 7,000 namesake retail pharmacies, the other part of the company's name comes from the 2007 acquisition of Caremark, a pharmacy benefit manager. Buying Caremark was a big deal for CVS -- it meant that the firm could suddenly avoid the somewhat adversarial relationship between PBMs and retail pharmacies. In essence, PBMs act as a middleman for pharmacies, stepping in between drugstores and drugmakers to source, package, and distribute pharmaceuticals in exchange for a markup along the way. Because CVS owns its own PBM, it doesn't have to fight over the size of that markup.
The introduction of MinuteClinics to many of CVS' store locations has provided another exciting growth avenue in the last few years, especially as consumers look for more cost-effective ways to get health treatments. Make no mistake: Right now, CVS' cash flows readily support a bigger dividend payout for investors.
CVS is one of
Warren Buffett's holdings as of the most recently reported period.