Walgreens Boots Alliance(WBA), Inc. operates as a pharmacy-led health and beauty retail company. The catch about the company is that they run around 13.000 stores across the United States. This is a big unbeatable standpoint. The United States segment sells prescription drugs and an assortment of retail products, including health, wellness, beauty, personal care, consumable, and general merchandise products through its retail drugstores. It also engages in the pharmaceutical wholesaling and distribution business in Germany.
They are almost alone in this segment, and alone this big. But let’s take a little dive into this…
BBB rated Market Cap: $40bn
From a Dividend standpoint…
Walgreens is a dividend champion, which means that the company is paying and raising dividends for 46 years right now, with no cut. But there isn’t a good consistency about the dividend raising, unfortunately. They raised it of course but only average 5,3% in the last 5 years which is lower compared to the time from 2011-2016 where this percentage was around 10,3%. The future growth for the dividend won’t be also that big, based on estimates from 12 analysts but fairly desirable with a rate of about 3-4% every year. As they plan the future, in the next 3 years they don’t wanna buy back shares only from 2025 by 3-3,5%.
The dividend amount that they are paying is very well covered by the cash flow. From my standpoint, the payout ratio of a company shouldn’t be higher than 75% because then in the long run won’t be able to manage the payouts and keep it without a cut sooner or later. WBA has a 38% payout ratio right now, and over the past 20 years, it was always lower or on the same level but never higher.
Bonus: They reported in the latest earnings call that they generated a bigger Cashflow compared to the year 2020. So it is a very strong point again to buy this stock.
There is a huge opportunity with the current stock price to buy in this company because the dividend yield is at 4,06% and the dividend Ex-date is 12. November is the date before you have to own the stock to get your dividend recorded.
From the growth standpoint…
I have to warn you. Don’t be fooled by what you see on the chart. This is actually as I call the „Amazon fear”. The market is worrying about an Amazon take over and that’s why the stock price is this low and we are in the „Margin of Safety”(orange line on the chart below) category which is also a very good advantage point to buy it right now. I’m not bearish about Amazon; 13.000 stores and a developing company in artificial intelligence with the new CEO from Starbucks. I see no point to worry about it.
So about the performance(chart below), In the last 20 years, the total return on my money was only 92%(Total Annual Return 3.3%) which is very sad to see but the future looks pretty bright. The estimated earnings performance in the next 3 years based on 14 analysts will be 23% per year which is above the market growth but the revenue won’t follow that trend, unfortunately. In the latest Q4 Earnings Call they reported that the EPS is $1.17 which is +28.1% better than it was one year ago.
(blue: normal P/E ratio, white: dividend payout ratio, light green area: dividend raise)
The P/E ratio is only 19.7, which is very good because I like the stock that has this ratio under 25. Debt is „yes” a thing to worry about and also a „no”. Short-term assets do not cover short and long-term liabilities but, the debt to equity ratio is good(37,3%), they paid back in the last quarter $6.5bn long-term credit and overall is well covered by the operating cash flow.
Recent News:
- They grew their members of the Mywalgreens app: From 75million to 85million.
- Walgreens give their users rewards and some financial security if they use Scarlet bank and credit cards in their stores.
- Reopening stores in the UK.
Risks and the overall takeaway
I have watched this stock over the past few months. I have to say I like it and I’m considering adding this to my portfolio a little bit later, maybe the next quarter(Because of diversification I don’t want to add it right now). A very underrated company, strong basis, I might forget to mention but the new CEO comes from Starbucks.
A very strong point in my opinion because Starbucks has generated very good capital growth over the years. Wallgreens is over a 100 years old company, good dividend yield, no cut, they can manage the payouts and they raising it also. With the new delivery system they are planning and AI, I see a very bright future. The only ratio I want to look at over time is the debt but that’s all.
Disclosure: I have no stock, option, or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article.