Major medical distributors are up for the year, on average easily surpassing the S&P this year. The industry's big three -- McKesson (MCK -0.15%), AmerisourceBergen (COR -0.01%), and Cardinal Health (CAH 0.30%) -- have an advantage of scale that make them great long-term ideas for anyone looking for a solid investment. Here's why.
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You can't overlook their dividends
All three have solid dividends. McKesson has raised its quarterly dividend for seven consecutive years and bumped its quarterly dividend 5% this year to $0.41 per share. It has a solid yield of 1.01% that's well backed with a conservative 10.97% payout ratio, trailing twelve months (TTM).
Cardinal has 15 consecutive years of dividend growth. The company just raised its quarterly dividend by 25% to $0.49 per share, giving it a nice yield of 3.49% with a sustainable payout ratio of 36.36% (TTM).
AmerisourceBergen also has 15 years of consecutive dividend growth. It raised its quarterly dividend 5% this year to $0.42 per share with a yield of 1.69%. Like McKesson, it has a conservative payout ratio of 23.70% (TTM).
McKesson has had a huge year
The Irving, Texas company is the biggest of the three. Its fourth quarter revenues were $58.5 billion, up 12%, and full-year revenues were $231.1 billion, up 8%. A lot of the company's growth was in its U.S. Pharmaceutical and Specialty Solutions segment, which saw revenues rise $13%. Its medical-surgical solutions segment did equally well, with revenues of $2.2 billion, up 13%.
McKesson's fourth quarter adjusted earnings per diluted share were $4.27 compared to $3.69 a year ago, an increase of 16%. Even with COVID-19 concerns, the company said it expects 2% to 4% growth in 2021.
Then there's the share price, which as of Tuesday, has risen 17.9% for the year. On Tuesday, it closed at $163.19, with its 52-week high of $172.18 within sight.
AmerisourceBergen may be the best bargain
AmerisourceBergen, located in Valley Forge, Pa., is trading, as of Tuesday, at $98.66, up 13.64% since the start of the year and close to its 52-week high of $98.74.
It's still a bargain if you look at the company's most recent earnings. In the second quarter, revenue was $47.4 billion, 9.5% above what it was in the same quarter, year over year. It also had Generally Accepted Accounting Principles (GAAP) diluted earnings per share of $4.69, a dramatic 3,469.2% jump from the same quarter in 2019. The company is in a strong cash position with $3.69 billion.
While things are going boffo, the company did lower its earnings per share guidance for fiscal 2020 to a range of $7.35 to $7.65, down from its previous estimate of $7.55 to $7.80, because of coronavirus concerns.
Cardinal's growth has been more impressive lately
Cardinal Health, located in Dublin, Ohio, is the smallest of the three and has had more modest, but solid growth this year.
In the third quarter, Cardinal reported revenue of $39.2 billion, up 11% over the same quarter in 2019, driven in large part by its pharmaceutical segment, which had $35.1 billion in revenue, up 12%. Its medical segment had revenue of $4.1 billion, a 5% rise, year over year.
Cardinal's consolidated operating earnings were $719 million, an increase of 8%. Its diluted earnings per share attributable to Cardinal were $1.19, up 20% from 2019.
Despite expecting more coronavirus headwinds in the fourth quarter, the company is sticking with its full-year guidance of non-GAAP diluted earnings per share between $5.20 and $5.40.
Its stock price started out at $50.58 on Jan. 1, dropped to a low of $41.00 on March 23, but since then has risen 36% to $55.77, as of Tuesday, which is up 10% for the year.
This trio makes it hard to make a bad decision
At a minimum, an investment in any of the three on Jan. 1 would have netted you 10% and possibly as much as 17.9% this year. If you bought in during late February or early March, you would likely have seen a bigger rise. Add in the added bonus of a solid dividend with all three, and it makes them nice long-term plays.
Of the three, Cardinal may be the best priced, with a price to earnings (P/E) ratio of 10.55%. Amerisource Bergen is also well-priced with a P/E of 12.98%. McKesson's stock has had the best run so far of the three, but its P/E is a little pricier at 31.81%.
