This week’s Stock of the Week is a different way to invest in the health-care industry.

Cardinal Health Inc. (CAH) provides medical products and pharmaceuticals to hospitals, health-care systems, pharmacies, surgical centers, clinical labs and physicians’ offices. It is in a sector that has come under political fire for health-care costs—but high prices are not its business model.

The company is a distributor, so it has very high revenue—$136.8 billion last fiscal year and likely $144.5 billion this fiscal year and $151 billion in fiscal 2020—but razor-thin profit margins that may drop to 0.9% next year. Further downward pressure is unlikely. The firm regularly repurchases shares, making each remaining share more valuable. It had 433 million outstanding shares in 2003 and now has 295 million, with the share total dropping every year. Cash flow this year should be about $8.50/share, so the stock is priced at only about six times cash flow.

The dividend of $1.91/share/yr., recently yielding 3.96%, appears quite secure and has tripled in the last decade. And Cardinal Health recently formed a partnership with CVS Caremark to source more generic drugs jointly—which should help boost its business while reducing costs for patients.

Fiscal year: June. Earnings per share: 2020 est./$4.45…2019 est./$4.90…2018/$4.42.

Bill Staton, CFA, is senior director at Novare Capital Management, Charlotte, North Carolina, which manages $1.1 billion.

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