Taking a nibble at Cardinal Health

Cardinal Health has been in a world of hurt lately, down nearly 16% in the last month alone thanks to concerns over generic drug prices and a narrowing of margins … probably due in large part to the pricing woes.

I mean, that’s just what the smart people are telling me.

Some of the technical stuff gets a bit muddled in my mind, but I can confirm the stock is down pretty significantly.

I should know … I’m a shareholder.

I became an even bigger one Wednesday, too, grabbing a share, my second, for $65.91. I now have two shares at an average cost of $68.61 – a pair of shares which make up almost 1% of my portfolio.

So, with the sentiment-lowering sentences I started this post with, why would I buy more … even one more share? That’s probably the question you’re asking yourself, right? Well, let’s break it down.

The bad: Cardinal Health’s less-than-stellar earnings

CAH has marginal problem. The problem is, well, the margins are shrinking. It’s gross margin slimmed from 5.09% to 4.73% and the operating margin fell to 2.47% from 2.92%. That, along with the cost control of generic drug issues, contributed to a decline in earnings.

As for those earnings, Cardinal Health saw a decline in year-over-year earnings growth … and a somewhat significant one (-9.74%). That’s what jumped out to me.

The good: Cardinal Health’s market share

Despite the earnings numbers and such, Cardinal Health forms an oligopoly with pharmaceutical distributors AmerisourceBergen (ABC) and McKesson (MCK) … one that, according to Morningstar, has a combined market share of over 90% in the pharmaceutical distribution industry. I’d say that’s a good spot to be in.

That said, I think Cardinal Health will find a way to work around the cost control issues and earnings flop. CAH will be just fine.

Then again, what do I know. I’m not telling you to buy Cardinal Health. As a blogger writing about what’s going on with my portfolio, I feel obligated to share why I bought a share … and may buy more if prices stay this low. That’s all.

The Dividend is solid, too

Cardinal Health, in my far-from-professional opinion, is also a good dividend-growth stock. Let’s finish there. It raised its payout by 14.6% in 2016 and 13.1% annualized over the last three years. CAH has been boosting its dividend for 12 straight years — a dividend which has a yield up near 3% with a lowish 45.90% payout ratio. The company pays $1.85 a share annually, which equates to an extra $0.46 scheduled to hit my account once every three months for the foreseeable future.

Cardinal Health, as you can imagine, is also pretty darn cheap right now. It’s currently trading just above it’s 52-week low of $62.70, more than 22% below its 52-week high.

March on!