Updated 3/11/25

McKesson Corporation (NYSE: MCK) is a giant in the healthcare distribution industry, supplying pharmaceutical products, medical supplies, and technology solutions to hospitals, pharmacies, and healthcare providers. With a history stretching back to 1833, the company has built a strong reputation for reliability and efficiency, making it a key player in the healthcare supply chain.

For investors looking at McKesson from a dividend perspective, the company offers a unique proposition. It’s not a high-yield stock by any means, but its steady dividend growth, strong financial footing, and shareholder-friendly policies make it worth a closer look.

Key Dividend Metrics

💰 Dividend Yield: 0.43% – Low, but supported by steady earnings growth.

📈 Dividend Growth Rate (5-Year Average): 10.56% – A solid pace for long-term investors.

🔒 Payout Ratio: 12.2% – Extremely low, meaning plenty of room for future increases.

📅 Ex-Dividend Date: March 3, 2025 – Investors must own shares before this date to receive the next payout.

📆 Next Dividend Payment Date: April 1, 2025 – Upcoming distribution date.

📊 5-Year Average Dividend Yield: 0.68% – Slightly higher than today’s level, but reflective of stock price gains.

Dividend Overview

McKesson’s dividend yield sits at just 0.43%, which won’t turn heads in the income investing world. That’s significantly lower than the broader market average, but it’s a direct result of the company’s rising stock price.

A key point to consider is the payout ratio, which is only 12.2%. That’s exceptionally low and signals that McKesson could afford to be much more aggressive with dividend hikes if management chose to do so. Instead, the company has taken a balanced approach—gradually raising its dividend while using excess cash for share buybacks and business expansion.

For investors seeking reliable income, McKesson might not be the first choice. But for those who value dividend growth and a stock that appreciates over time, it remains a compelling option.

Dividend Growth and Safety

One of the most attractive aspects of McKesson’s dividend is its long-term sustainability. With a payout ratio as low as 12.2%, the company has plenty of flexibility to continue increasing payments, even during economic downturns.

The company’s free cash flow sits at $2.06 billion, and operating cash flow is even higher at $2.48 billion. These strong cash flows ensure that dividends are well-covered without putting financial strain on operations.

Over the last five years, McKesson has delivered an average dividend growth rate of 10.56%. That’s impressive, considering many mature companies struggle to maintain even half that pace. However, management has also prioritized stock buybacks, which have been a significant factor in shareholder returns.

There is always a risk that the company continues prioritizing buybacks over dividends, which could slow dividend growth in the future. But given its financial strength, any slowdown would likely be a strategic decision rather than a necessity.

Financial Health and Stability

McKesson’s financial foundation is rock solid. The company generated $344.58 billion in revenue over the last twelve months, with gross profits totaling $13.12 billion.

Net income reached $2.83 billion, showing strong bottom-line growth. McKesson operates on tight margins—common in the distribution industry—but the sheer scale of its business allows it to generate significant cash flow.

Debt is one area to watch. The company holds $9.79 billion in debt, which is manageable given its cash flow, but the current ratio of 0.88 suggests short-term liabilities slightly outweigh short-term assets. That’s not unusual for a company of this size, but it’s something to keep an eye on.

Despite this, McKesson continues to efficiently manage its capital. The return on assets (ROA) is 5.24%, a decent figure considering the low-margin nature of its business.

Analyst Ratings

McKesson Corporation (MCK) has received a mix of upgrades and downgrades from analysts in recent months, showing a range of opinions on the company’s future performance. The consensus price target is currently $682.07, suggesting a moderate upside from where the stock is trading.

📈 Upgrades

🔹 Baird – Upgraded from Hold ➝ Buy on November 7, 2024, raising the price target from $531 to $688. The upgrade was based on McKesson’s strong financial performance and cost-saving initiatives that are expected to drive long-term profitability.

🔹 Evercore ISI Group – Maintained an Outperform rating and increased the price target from $650 to $675 on February 6, 2025. Analysts pointed to the company’s earnings growth and ability to manage expenses efficiently as reasons for the improved outlook.

📉 Downgrades

🔻 Baird – Downgraded from Buy ➝ Hold on September 24, 2024, with the price target lowered from $603 to $531. The downgrade was due to concerns over potential margin pressures and regulatory risks that could impact the company’s earnings.

🔻 Citigroup – Maintained a Buy rating but reduced the price target from $713 to $677 on January 10, 2025. Analysts expressed caution about increasing competition in the healthcare distribution sector, which could limit McKesson’s growth opportunities.

These differing views show that while McKesson remains financially strong, factors like competition and regulatory challenges continue to influence analyst sentiment.

Earnings Report Summary

McKesson’s latest earnings report gave investors plenty to think about. The company reported strong revenue growth, but not quite enough to meet Wall Street’s expectations. Still, profitability remained solid, and management made some slight adjustments to their outlook for the rest of the fiscal year.

Revenue Growth, But A Slight Miss

McKesson brought in $95.29 billion in revenue for the quarter, a solid 19% increase from the same period last year. Most of that growth came from its U.S. Pharmaceutical segment, which alone generated $87.11 billion in sales. However, even with these impressive numbers, revenue came in a bit lower than analysts had expected, as forecasts were slightly higher.

Earnings Hold Strong

Even though revenue didn’t quite hit the mark, McKesson still managed to post strong earnings. The company reported adjusted earnings per share (EPS) of $8.03, which was just a little above what analysts had been expecting. This shows that McKesson is keeping a tight grip on expenses and finding ways to maintain solid profits, even when revenue falls a little short.

Tweaking The Forecast

Looking ahead, McKesson made some small adjustments to its earnings outlook for the rest of the year. The company now expects adjusted EPS to land between $32.55 and $32.95, narrowing its previous range of $32.40 to $33.00. The adjustment isn’t drastic, but it does show that management is being careful with expectations given market conditions.

Stock Market Reaction

Despite the strong earnings number, McKesson’s stock dipped about 3% in after-hours trading following the report. Investors seemed to focus more on the revenue miss rather than the fact that earnings came in slightly ahead of estimates. It’s a reminder that sometimes expectations, rather than actual results, drive short-term stock movements.

How It Stacks Up Against Competitors

McKesson isn’t the only major player in drug distribution, and its earnings report was a bit of a mixed bag compared to some of its rivals. Cardinal Health, for example, recently posted stronger-than-expected earnings and even raised its profit forecast for the year. That means McKesson will need to stay sharp as it competes in an industry where margins are tight, and every little edge matters.

A Focus on Specialty Medicines

One of McKesson’s key strategies is expanding its specialty medicines business. These are high-margin products used to treat complex conditions like cancer and autoimmune diseases. This focus could help drive future profitability as demand for these treatments continues to grow.

McKesson’s earnings report wasn’t perfect, but it showed resilience. The company remains profitable, continues to grow, and is adjusting expectations realistically as it moves forward.

Valuation and Stock Performance

McKesson’s valuation suggests the stock isn’t necessarily cheap, but it’s also not outrageously expensive.

• Trailing P/E Ratio: 30.22 – A bit elevated compared to historical levels.
• Forward P/E Ratio: 17.95 – More reasonable, reflecting expectations of earnings growth.
• PEG Ratio (5-Year Expected): 1.14 – Indicates fair valuation based on projected growth.
• Price-to-Sales Ratio: 0.25 – Typical for a distribution business.

The stock has performed exceptionally well, rising nearly 24% over the past year. That’s well ahead of the S&P 500’s gain of 8.49% in the same period.

Recent stock movement:

• 52-Week High: $663.62
• 52-Week Low: $464.42
• Current Price: $655.36

McKesson is trading near its all-time highs, which might make some investors hesitant to jump in at current levels. However, given the company’s strong earnings growth and commitment to returning capital to shareholders, there could still be room for further appreciation.

Risks and Considerations

While McKesson is a well-run company, there are always risks to keep in mind.

1. Low Dividend Yield – The current yield is below average for dividend investors. This stock is more about dividend growth than high income.
2. Regulatory Risks – As a healthcare distributor, McKesson operates in a heavily regulated space. Changes in government policy could affect its margins.
3. Thin Margins – Distribution businesses operate on razor-thin margins, meaning any pricing pressure can have a big impact on profitability.
4. Debt Load – With $9.79 billion in debt, rising interest rates could make refinancing more expensive over time.
5. Stock Buybacks vs. Dividends – The company prioritizes share repurchases, which means dividend growth might not be as aggressive as some income investors would like.

Despite these risks, McKesson remains a resilient business, and its financial strength makes it well-equipped to handle challenges.

Final Thoughts

McKesson isn’t the type of stock that will attract dividend investors looking for high yields, but it offers something equally valuable—steady dividend growth and capital appreciation.

The company’s low payout ratio, strong earnings, and shareholder-friendly policies make it an excellent long-term hold for investors who want exposure to healthcare without sacrificing financial stability.

For those who need immediate high income, other stocks will provide better yields. But for investors focused on long-term wealth building through dividend growth, McKesson continues to be a solid choice.

It’s a company that quietly delivers value to shareholders year after year, making it a worthwhile consideration for investors who think beyond short-term income.