Updated 3/6/25
Cardinal Health (NYSE: CAH) is a key player in the healthcare supply chain, delivering pharmaceuticals and medical products to hospitals, pharmacies, and clinics. With a market cap of about $30.7 billion, the company plays a behind-the-scenes but critical role in ensuring the smooth flow of essential medical goods.
For income investors, Cardinal Health offers a steady dividend, a manageable payout ratio, and a history of rewarding shareholders. However, it’s not without risks, including margin pressure and legal concerns. Let’s take a closer look at what makes CAH an interesting option for dividend investors.
📊 Key Dividend Metrics
🔹 Dividend Yield: 1.59% 📉 (Lower than its 5-year average of 2.88%)
🔹 Annual Dividend: $2.02 per share 💵
🔹 Payout Ratio: 37.57% ✅ (Well covered by earnings)
🔹 Dividend Growth Streak: 37 consecutive years 🔄
🔹 5-Year Dividend Growth Rate: ~1% 📈 (Slow but steady)
🔹 Ex-Dividend Date: April 1, 2025 📅
🔹 Next Dividend Payment: April 15, 2025 💰
Dividend Overview
Cardinal Health has been a consistent dividend payer for decades, proving its reliability to income-focused investors. However, while the company’s commitment to paying dividends is impressive, its growth rate has been underwhelming. The 5-year dividend CAGR is hovering around 1%, which doesn’t quite keep pace with inflation.
At 1.59%, the current yield is lower than its historical average, signaling that the stock’s price has risen faster than its dividend growth. While this is great for total returns, it’s less appealing for those seeking high yield.
That said, the payout ratio sits at a comfortable 37.57%, meaning the dividend is well covered and has room to grow. The company has taken a conservative approach, maintaining a steady dividend while also managing cash flow for operations and debt.
Dividend Growth and Safety
Dividend Growth
While 37 years of consecutive dividend payments show strong commitment, the actual rate of increase has been minimal. Unlike other healthcare giants that consistently boost their payouts, Cardinal Health has chosen to grow its dividend at a much slower pace.
This cautious approach suggests management is prioritizing financial flexibility, possibly to deal with the industry’s tight margins and ongoing legal matters. It’s a tradeoff—investors get consistency but not much excitement in terms of rising income.
Dividend Safety
A dividend’s sustainability matters just as much as its yield. In Cardinal Health’s case, there are a few reassuring signs.
✅ A payout ratio of just 37.57%, leaving room for increases
✅ A steady business model built around healthcare distribution
⚠️ A high debt load of $7.61 billion, which could slow future dividend hikes
While the dividend is safe for now, significant future increases may be limited unless earnings see a meaningful uptick.
Chart Analysis
Price Action and Moving Averages
The stock has been in a clear uptrend over the past several months, steadily climbing above both the 50-day and 200-day moving averages. The 50-day moving average (orange line) has acted as a strong dynamic support level, keeping the stock in a bullish trend. The 200-day moving average (blue line) continues to slope upward, confirming the long-term uptrend.
A notable point on the chart is the crossover that occurred around mid-year, when the 50-day moving average crossed above the 200-day moving average. This golden cross typically signals a shift in momentum to the upside, and the stock has indeed rallied strongly since then.
In recent weeks, price action has flattened near the $127 mark, suggesting the stock may be consolidating after an extended move higher. There have been multiple tests of the 50-day moving average, but each time, buyers have stepped in to defend the price, reinforcing support.
Volume and Market Participation
Volume has remained relatively stable, with occasional spikes during key breakout moments. The largest volume bar on the chart appears around late December, coinciding with a sharp upward move. This suggests strong institutional buying interest, which often leads to continued strength in a stock.
More recently, volume has moderated but remains healthy, which is typical during periods of consolidation. There have been a few days where selling volume increased, but none of them signaled panic selling, as the price has remained resilient.
Relative Strength Index (RSI)
The RSI indicator at the bottom of the chart shows that the stock entered overbought territory during its strongest rally but has since cooled off. It is currently hovering around a neutral level, which suggests there is no immediate risk of a major pullback, but also no clear signal that another strong leg higher is imminent.
A notable pattern is how RSI has consistently found support before dipping into oversold territory. This indicates that buyers are stepping in at key levels, reinforcing the bullish trend. If RSI begins trending downward below 40, it could be an early warning of potential weakness ahead.
Recent Price Behavior
Looking at the last five candlesticks, the stock has traded within a relatively tight range. There have been both upper and lower wicks, suggesting some indecision in the market. This often happens after a strong rally when traders are waiting for the next catalyst to push the stock in either direction.
The most recent candle closed slightly higher, showing that buyers are still in control, but there was a wick on top, indicating some selling pressure near the highs. If this pattern continues, the stock may need to test lower support levels before resuming an upward move.
Analyst Ratings
🔼 Upgrades
📈 Evercore ISI Group upgraded Cardinal Health from “In-Line” to “Outperform” with a price target of $140. The firm expects operational efficiencies to improve profitability, and its medical segment is showing signs of strong growth. With ongoing cost-cutting measures and better supply chain management, Evercore sees the company positioned for long-term gains.
📊 TD Cowen shifted its rating from “Hold” to “Buy”, raising the price target from $130 to $144. Analysts cited strong execution in pharmaceutical distribution and the company’s ability to navigate industry challenges effectively. They believe Cardinal Health’s strategic moves will continue to boost earnings.
🔽 Downgrades
⚖️ Wells Fargo adjusted its stance on the stock, moving it from “Underweight” to “Equal Weight”, with a revised price target of $127. While this is technically an upgrade, it reflects a more cautious tone. Analysts pointed to ongoing margin pressures and competitive challenges within the distribution space, signaling potential risks ahead.
📉 Mizuho kept its rating at “Neutral” but slightly increased its price target from $110 to $120. The firm acknowledges that the company has been performing steadily, but analysts remain cautious about industry headwinds that could slow growth.
🎯 Consensus Price Target
Across multiple firms, the average 12-month price target stands at $136.36, with estimates ranging from $120 to $150. This suggests analysts see moderate upside from current levels, though opinions remain mixed on the pace of future growth.
Earning Report Summary
Cardinal Health’s latest earnings report showed a mix of challenges and strengths, with the company proving its ability to navigate a tough environment while still delivering solid financial results.
Revenue came in at $55.3 billion, which on the surface looks like a 4% decline from the same quarter last year. However, if you take out the impact of a large customer contract that expired, the underlying revenue actually grew by 16%. That tells a more positive story—one of strong demand and business growth despite some headwinds.
On the profitability side, GAAP operating earnings climbed 9% to $549 million, showing that cost-cutting and efficiency measures are paying off. Non-GAAP operating earnings also rose 9% to $635 million, largely thanks to the Pharmaceutical and Specialty Solutions segment, which continues to be a major driver for the company.
Earnings per share (EPS) followed suit, with GAAP diluted EPS hitting $1.65 and non-GAAP diluted EPS increasing by 2% to $1.93. The bump in EPS came from stronger profits and fewer outstanding shares, though some of these gains were offset by higher interest expenses from recent acquisitions.
Looking at the Pharmaceutical and Specialty Solutions segment, revenue declined 4% to $50.8 billion, but again, adjusting for the expired contract, it actually grew by 17%. Specialty pharmaceuticals and brand-name drugs fueled that growth, as demand from both existing and new customers remained strong. Segment profit also rose 7% to $531 million, benefiting from contributions by BioPharma Solutions and Specialty Networks.
Meanwhile, the Global Medical Products and Distribution business saw 1% revenue growth, reaching $2.9 billion. While that number isn’t flashy, the real win here is profitability. This segment’s earnings jumped to $47 million, a huge improvement from just $7 million a year ago. Better cost controls and inflation management played a big role in that turnaround.
With this performance, Cardinal Health has updated its full-year 2025 guidance, now expecting non-GAAP EPS to land between $7.85 and $8.10. This suggests confidence in the company’s ability to continue growing earnings, despite some ongoing industry challenges.
All in all, while there were some expected bumps along the way, Cardinal Health is showing resilience and solid execution, particularly in its pharmaceutical and specialty business. Investors looking for stability in a healthcare stock will likely find these results reassuring.
Financial Health and Stability
Cardinal Health’s revenue is massive, coming in at $222 billion. But because the company operates in a high-volume, low-margin industry, its profitability remains thin.
- Operating margin: 1.02%
- Profit margin: 0.59%
These numbers highlight the challenge of running a distribution business—there’s little room for error. That said, the company still maintains a return on assets of 3.01%, which is reasonable given the nature of the industry.
Balance Sheet Overview
💰 Total Cash: $4.01 billion
💳 Total Debt: $7.61 billion
📉 Debt-to-Equity: Not available (Negative book value)
📊 Current Ratio: 1.01 (Adequate liquidity)
Cash flow is where things get interesting. Levered free cash flow sits at $595 million, suggesting that the company has enough capital to support its dividend. However, its most recent operating cash flow was just $8 million, which is a bit concerning for a business of this size.
While the balance sheet isn’t alarming, it does limit the company’s flexibility. High debt levels and shrinking revenue could force Cardinal Health to focus more on stability than aggressive shareholder returns.
Valuation and Stock Performance
At $127.01 per share, Cardinal Health is trading at a forward P/E of 14.10, which is reasonable given its steady nature.
🔹 Price/Sales Ratio: 0.14 (Relatively cheap)
🔹 EV/EBITDA: 13.13 (Slightly high)
🔹 PEG Ratio: 0.83 (Suggests undervaluation based on growth)
The stock has been on a strong run, climbing 36% from its 52-week low of $93.17. While it still trades at a reasonable multiple, the lower yield means it’s not as much of a bargain for income investors as it was in the past.
CAH’s 50-day moving average is $125.06, while its 200-day moving average is $112.34. The stock has clear momentum, which might make it less attractive for those looking to buy at a discount.
Risks and Considerations
Even with its stability, there are some risks that investors should keep in mind.
⚠️ Low margins – Operating at just 1% margins means profitability can be volatile.
⚠️ Revenue decline – A 3.8% drop in quarterly revenue suggests business headwinds.
⚠️ Legal overhang – The company has faced legal issues related to opioid settlements.
⚠️ High debt – With $7.61 billion in debt, financial flexibility is somewhat constrained.
While Cardinal Health is a solid company, these risks make it important for investors to have realistic expectations. It’s not a high-growth play, and its dividend growth is modest.
Final Thoughts
For those who prioritize safety and consistency, Cardinal Health remains a reliable dividend stock. It has a long track record of paying dividends, a sustainable payout ratio, and a strong position in the healthcare supply chain.
✅ Pros
✔️ 37-year history of dividend payments
✔️ Low payout ratio (37.57%) ensures safety
✔️ Reasonable valuation with stable earnings
⚠️ Cons
🚫 Dividend growth has been slow at ~1% per year
🚫 Thin margins mean earnings can be volatile
🚫 High debt could limit future shareholder returns
Cardinal Health fits well in a portfolio for investors looking for stability over high yield. While it’s not the most exciting dividend stock, it’s dependable and continues to reward long-term shareholders.
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