Walgreens Boots Alliance (WBA) Dividend Stock Analysis
Walgreens Boots Alliance Dividend
Current Dividend: $1.50
Dividend Yield: 1.8%
Cash Dividend Payout Ratio: 23%
Market Capitalization: 88 B
Enterprise Value: 95 B
Sector: Consumer Defensive
Industry: Pharmaceutical Retailers
Walgreens Boots Alliance is the result of the merger of Walgreens and Alliance Boots (Switzerland based) in December 2014. The combined company operates in more that 25 countries and employs more than 370,000 people.
Walgreens has grown both organically and through purchases of competitors, including Rite-Aid in 2015 for 17.2 billion. WBA operates in three segments: Retail Pharmacy USA (70% of revenues), Pharmaceutical Wholesale (20% of revenues), and Retail Pharmacy International (10% of revenues).
Walgreens Boots Alliance has at least two important competitive advantages. First, they have tremendous economies of scale due to their size. Acquisitions and mergers have produced significant cost synergies. The ten-year pharmaceutical distribution agreement between Walgreens and AmerisourceBergen should only enhance those advantages.
The second important competitive advantage is strategic assets which are the prime real estate Walgreens owns across the United States. Walgreens has the vast majority of Americans living within a few miles of one of their pharmacies.
The long term outlook for rising prescription use is almost a given. Aging populations, new breakthroughs in drugs, and increasing health care coverage all indicate that demand will be growing for the foreseeable future.
The retail pharmacy business has consolidated because it is highly competitive. Walgreens and its competitors mostly compete on price and accessibility of store locations. In addition about one-third of profits come from non pharmaceutical products which is also trending to a more competitive environment.
Walgreens size allows it to achieve efficiencies in distribution and costs that smaller retailers are unable to obtain. This is important in a competitive environment. That means WBA will most likely continue to expand through strategic partnerships (i.e. AmerisourceBergin), acquisitions (i.e Rite-Aid) , and mergers (i.e. Boots Alliance).
Walgreens faces three major threats: 1) Pharmacy Benefits Managers (PBM’s) are customers with huge pricing power. This can keep margins extremely low. 2) The front of the house (non-pharmaceutical products) are experiencing increased competition from various retailers and mass grocers. 3) Changes in Medicare, Medicaid, and Obamacare bring uncertainty.
Dividend Analyzer Checklist
(updated November 2016)
Dividend Safety Score (26/33 points)
Dividend Per Share (ttm): $1.46
Dividend Payout Ratio (ttm): 37%
Dividend Per Share (10 Year Growth): 18%
Cash From Operations (CFO) Per Share (ttm): $7.19
CFO Dividend Coverage (CFO / DPS): 4.9 (5/6 points)
Free Cash Flow (FCF) Per Share (ttm): $5.98
FCF Dividend Coverage (FCF / DPS): 4.1 (6/6 points)
Net Financial Debt: $9221 M
Total Assets: $72688 M
Net Financial Debt / Total Assets: 13% (9/12 points)
Net Financial Debt to EBITDA (ttm): 195%
Total Liabilities to Assets Ratio (Qtr.): 59%
Piotroski Score (1-9) (TTM): (6/9 points)
Profitability & Growth Score (26/33 points)
Revenue (10 Year Growth) *CAGR > 4.14%: 9.5% (4/4 points)
EPS Basic Cont. Operations (10 Year Growth) CAGR > 4.14%: 8.3% (4/4 points)
Cash From Operations (10 Year Growth) CAGR > 4.14%: 12.4% (6/6 points)
Operating Earnings Yield (ttm): 6.8% (3/7 points)
Net Income (ttm): 4173 M
Gross Profit (ttm): $29874 M
Total Assets: $72688 M
Gross Profitability Ratio = GP / Total Assets: 41% (9/12 points)
Cash Return On Invested Capital (CROIC)(tttm): 14%
Return on Invested Capital (ROIC): 9%
Return on Invested Capital (ROIC) (5 Year Median): 10%
Return on Invested Capital (ROIC) (10 Year Median): n/a
Valuation Score (17/34 points)
Free Cash Flow Yield (ttm): 7.4% (8/9 points)
EV to EBIT (ttm): 16.1 (4/9 points)
EV to EBITDA (ttm): 12.5 (4/9 points)
PE10: 31.7 (1/7 points)
Price to Sales Ratio (ttm): 0.7
Price to Book Value (ttm): 2.9
Price to Earnings Ratio (P/E) (ttm): 21.1
TOTAL POINTS – (69/100) (50 is an average score)
*Compound Annual Growth Rate (CAGR) **A Compound Annual Growth Rate of 4.14% = a 50% gain over 10 years.
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(updated November 2016)
Type of Investor / Recommendation
Large Diversified Dividend Portfolios / Should Be Considered
Looking For Exposure to Consumer Defensive Sector / Good Option
Deep Value Investors / Watchlist
Walgreens Boots Alliance (WBA) is ranked #29 (out of 248) overall and #6 (out of 34) in the Consumer Defensive sector by the Dividend Analyzer. WBA has a solid balance sheet and a solid profitability & growth record. The stock should be considered for accumulation on price pull-backs.
Walgreen’s or CVS Health? For investors trying to decide between the two its basically a toss-up. If your portfolio needs more healthcare I would favor CVS. If your portfolio needs more of tilt toward consumer products I would favor WBA.
Portfolio Position Disclosures:
DVB Dividend Kings & Aristocrats – None
DVB Dividend Growth – None
DVB High Income – None
Arbor Asset Allocation Model Portfolio (AAAMP) – None
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