OneMain Holdings (OMF)
OneMain Holdings is a financial services company providing credit access to non-prime customers. With a quarterly dividend payment of $1 per share and an appealing dividend yield of approximately 9%, OMF emerges as our first dividend pick. Following the recent Investor Day, RBC Capital analyst Kenneth Lee reaffirmed his buy rating on OMF stock, setting a price target of $50. Lee asserts increased confidence in the company’s underwriting and analytics capabilities, coupled with insights into the advantages of its omnichannel presence. Notably, OMF management revealed that its underwriting models, incorporating machine learning, alternative data, and cash flow information, possess twice the predictive power of bureau credit scores. Lee also highlights OMF’s entry into the auto financing sector, expanding its total addressable market to about $1.3 trillion. In the medium term, the company anticipates an annual capital generation per share of approximately $12.50, with a capital generation return on receivables of nearly 5%. According to Lee, factoring in organic growth, dividend payouts, and retained capital, OMF could potentially generate approximately $6 per share in excess capital on an annual basis. Statistically, Lee’s ratings have proved profitable 65% of the time, yielding an average return of 14.3%.
CVS Health (CVS)
Our attention now turns to CVS Health, a prominent retail pharmacy chain that recently announced a 10% increase in its quarterly dividend to 66.5 cents. This upward adjustment positions CVS with a forward dividend yield of around 3.5%. Reflecting on this development, Mizuho analyst Ann Hynes observed that while the company’s long-term adjusted EPS growth floor of more than 6% falls short of her high-single-digit forecast, there exists potential for upside if CVS gains market share through the successful execution of its growth strategies and the new pharmacy reimbursement model. Hynes believes CVS’ focus on healthcare delivery will bolster its expansion efforts as it continues to enhance its Signify and Oak Street businesses. “CVS remains committed to a balanced capital deployment strategy with growing dividends,” added Hynes. CVS foresees $40 billion to $50 billion of deployable cash from 2024 to 2026, averaging $7 billion in annual free cash flow. The company plans to allocate 35% toward capital expenditures, 25% to dividends, with the remaining 40% available for flexible deployment, including share repurchases. Overall, Hynes holds a bullish outlook on CVS, reiterating a buy rating with a price target of $86. Amongst the 8,600 analysts on TipRanks, Hynes holds a respectable 489th position. Her ratings have secured success rates of 61%, delivering an average return of 7.2%.
By implementing these strategic insights from Wall Street experts, long-term investors can position themselves for favorable returns while capitalizing on the potential of dividend stocks in the current market landscape.