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Walgreen Stock Analysis

Walgreen Co. (WAG), together with its subsidiaries, operates a chain of drugstores in the United States. The company is a member of the dividend aristocrats index, has paid dividends since 1933 and increased them for 37 years in a row. The company’s last dividend increase was in July 2012 when the Board of Directors approved a 22.20% increase to 27.50 cents/share. The company’s largest competitors include CVS Caremark (CVS), Rite Aid (RAD) and Wal-Mart Stores (WMT). Over the past decade this dividend growth stock has delivered an annualized total return of 1.50% to its shareholders.

The company has managed to an impressive increase in annual EPS growth since 2002. Earnings per share have risen by 12.90% per year. Analysts expect Walgreen Co. to earn $2.60 per share in 2012 and $3.03 per share in 2013. In comparison Walgreen earned $2.94/share in 2011.

The return on equity has remained stuck in range between 17% and 19% over the past decade, with the exception of a brief decrease below 15% in 2009 and 2010. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by 18.90% per year over the past decade, which is higher than the growth in EPS.
A 12.90% growth in distributions translates into the dividend payment doubling almost every four years. If we look at historical data, going as far back as 1986 we see that Walgreen’s has actually managed to double its dividend every five years on average. The dividend payout ratio has almost doubled from 15% in 2002 to 25.50 in 2012. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently, Walgreen is attractively valued at 12.30 times earnings, has an adequately covered dividend and yields 3%. I would consider adding to my position in the stock subject to availability of funds.

Full Disclosure: Long WAG and WMT

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 This article was written by Dividend Growth Investor. If you enjoyed this article, please subscribe to my feed [RSS], or have future articles emailed to you [Email] or follow me on Twitter [Twitter].