Dividend Farming Scorecard: Walgreens (WBA)

Walgreens has been a staple of my Dividend Farm for close to a decade.  It had a nice run until recently but is off its 52-week high be a wide margin.  As a result, it’s time to look at WBA to see if this plunge is a structural issue signaling greater problems ahead or a condition of moving from over bought to over sold?

Below is a snapshot of factors I’m scoring for WBA as of May 15, 2019.  Laying out my analysis helps me benchmark a holding or opportunity against target metrics.  It also allows me to quickly compare this firm to alternatives as part of my screening process.

FACTOR	METRICS	WBA
CCC List	Champion	Champion
Current Yield	4.0%	3.27%
Company Profile	Red Flags?	???
Industry Leadership	Top 10	#2 in U.S.
Market Cap	$10 B+	$48.2 B
P/E	< 20	9.9
P/B	< 2	1.95
Debt / Equity	< 1	1.59
Dividend History (Years)	25	43
12 Month Price Range	Lower Half	Bottom 5%
Dividend Payout Ratio	< 75%	32.39%
Portfolio Weight	Slightly Over	Slightly Over

CCC List: The DRIPinvesting.org web site provides the list of Champions, Contenders, and Challengers where I normally start.  WBA is a Dividend Champion with 43 straight years of dividend growth.  Rising above 40 years of consecutive dividend growth puts a firm in rare territory.

Current Yield:  WBA’s yield is 3.27% which is clearly below my desired target.  Given an extensive dividend history and a low payout ratio, there appears to be plenty of upside depending on the state of other metrics.

Company Profile:  WBA is a cornerstone in retail consumables, particularly pharmacy.  As the second largest retail outlet in the U.S. there don’t appear to be large red flags visible.  Walgreens under-performed relative to analyst estimates in early April.  It’s possible the market overreacted to a miss against analyst forecasts.  It happens.

Industry Leadership:  WBA is the #2 in its space in the U.S. by revenue behind only CVS.  Given the trajectory of healthcare and current population demographics (aging rapidly), it’s in a strong position.

Market Capitalization:  At $48.2.B WBA’s market cap is over 4x my target.  Coupled with its market position, the market cap and dividend history offer good stability with plenty of opportunity for div growth.

Price to Earnings:  The trailing P/E of 9.9 is about as solid as it gets.  At that rate, WBA may be approaching bargain territory.

Price to Book:  The P/B ratio of 1.95 is within my range; just.  Close counts and it’s under the wire. 

Debt to Equity:  Debt to equity is nearly 60% over target.  Not ideal.  There’s a fairly high level of treasury stock weighing negatively in this equation.  May be good; may be bad; depending how the firm handles it.   

Dividend History:  Growing dividends for 43 years is outstanding.  Records like that are highly valued by this Dividend Farmer.

Price Range:  The price is barely above its trailing 12-month (TTM) low.  Considering the pullback from its high, no major red flags, solid metrics, and a long history of div growth I’m starting to think WBA is a buy opportunity.

Payout Ratio:  The payout ratio of 32.39% is well under my 75% target ceiling.  WBA has a lot of room to grow its dividend which can beef up yield on cost long term.  It comes with healthy annual dividend pay raises represented by dividend growth rates of 6.4% and 15% over 3 years and 10 year respectively.  This bodes well for future dividend streams helping offset the under target yield noted earlier.

Portfolio Distribution:  WBA falls within my healthcare segment which is not light in my stock bucket.  I can add to it without going far over weight, but shouldn’t over extend if I go this direction.

Analysis  

Of the companies reviewed the past several months (WBA) scores really well against my benchmarks and the other company Scorecards.  The yield isn’t where I’d like it to be but WBA is solid, has a great record, and continues to offer room for nice dividend growth.  If the large drop is due to nothing more than finicky analysts, the financial equivalent of television weathermen, then the dip, although large, may be temporary.  Along with ADM, this Champion is on my short list when investment cash becomes available.

The thoughts expressed here are those of the author, who is not a financial professional.  Opinions should not be considered investment advice.  They are presented for discussion and entertainment purposes only.  For specific investment advice or assistance, please contact a registered investment advisor, licensed broker, or other financial professional.