WBA Dividend Stock Analysis: Good For Money Now?

Walgreens’ Dividend Safety, History, Growth, Stock Valuation, and More!

Let’s work through a WBA dividend stock analysis today. I want to see what has been going on with the business.

Also, the dividend payments. Provided by this well-known retail pharmacy chain.

So, let’s kick it off with a few highlights.

WBA dividend stock analysis

Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.

WBA Dividend Stock Analysis: Key Takeaways

1. WBA’s recurring dividend payments have grown nicely over the long term. But recent dividend increases have not been as attractive. Above all, the WBA dividend appears safe from a reduction.

2. A return to higher dividend growth is possible. But, it depends on management effectively executing their strategy to grow earnings. If successful, I forecast the company can deliver a 5% future annual dividend growth rate.

3. WBA’s current dividend yield. And projected dividend growth represents a nice combination for a dividend growth stock investor.

Related: More articles for dividend stock investors

4. Next, the stock is trading near its fair value, in my opinion. However, further stock price gains have been limited due to the uncertainty about the company’s future. And the competitive challenges it is facing.

5. Finally, with its strong brand recognition and scale. I believe WBA can successfully manage through the difficult business issues it faces. And be a good long-term investment for my portfolio at current prices.

Resource: Manage your money and investments with M1 Finance

Time to dive into the details. I’ll start with a bit of background on the company’s operations.

Walgreens – Business & Operating Segments

WBA is the first global pharmacy-led, health, and well-being enterprise. Their purpose is to help people across the world lead healthier and happier lives.

First of all, in the United States, they operate under the name brands Walgreens and Duane Reade. This combination represents the largest US-based retail pharmacy business.

Furthermore, the company has an international retail pharmacy division. It operates mainly in Europe and Asia. They are a market leader in Europe. Operating under the Boots and Alliance Healthcare brand.

Source: About Walgreens Boots Alliance

Walgreens – Stock Symbol

Walgreens’ stock trades on the NASDAQ Stock Exchange. The company’s stock symbol is WBA (NASDAQ: WBA).

The stock symbol stands for the company’s full name. Walgreens Boots Alliance.

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Walgreens – Growth Strategy

The company is pursuing several strategic priorities to grow its businesses:

  • Improving the performance of Boots in the United Kingdom
  • Advancing omnichannel retail capabilities including store pick-up options
  • Creating local health destinations through hundreds of full-service doctor offices
  • Reducing expenses through a cost management program
  • Expanding testing and vaccinations in response to the pandemic

Walgreens – Business Risks

However, WBA is operating in a challenging environment.

Major pharmacy customers include drug benefit plan payers, pharmacy benefits managers, and governmental entities. They have a great scale.

So, Walgreens’ customers demand pricing concessions. In exchange for buying large quantities of WBA’s products and services.

Also, competition in the front section of stores is fierce. For sales of over-the-counter products, consumer goods, and food and beverage.

This competition comes from the likes of Walmart and other mass grocery stores.

Related: Walmart stock and dividend analysis

Finally, we have competition from Amazon. Aren’t they taking over the entire world as we know it? And taking market share from the likes of Walgreens?

WBA is trying to offset these headwinds with consolidation and cost savings efforts of its own. And gaining efficiencies and scale through acquisitions.

Okay. That’s enough about Walgreens’ business. Let’s move on to all of the dividend information you need to know about Walgreens.

Does Walgreens Pay A Dividend?

Yes. Walgreens pays dividends.

Furthermore, the company has paid a dividend for a very long time. Dating back to the early 1900s. More on WBA’s dividend history in a moment.

What Is The WBA Dividend Rate Per Share?

The WBA dividend payout is $1.91 per share. On an annualized forward basis.

The forward Walgreens’ dividend per share is the most recent quarterly dividend paid. Multiplied by the number of times dividends are paid each year.

WBA Dividend Yield

At the recent WBA stock price, investors are rewarded with about a 4% WBA dividend yield (at the time of this article update).

First of all, WBA’s yield is within my desired dividend yield range. That being 3%-5%.

It’s in this range where I can make a good dividend income. However, this is purely my preference as a dividend stock investor. Rather than a hard and fast rule for others to follow.

Furthermore, a stock’s dividend yield is the annual forward dividend rate. Divided by the stock’s price.

Finally, a stock’s dividend yield changes daily. It has an inverse relationship with a stock’s price. And we all know how quickly stock prices can change.

How Often Does WBA Pay Dividends?

Some stocks pay dividends monthly. But the WBA dividend does not follow that pattern.

Walgreens pays dividends every 3 months or 4 times per year. Each quarterly dividend payment is one-fourth of the annual dividend rate.

When Does Walgreens Pay Its Dividends?

The quarterly WBA dividends are paid in March, June, September, and December. The dividend pay date falls on or around the 11th day of these months.

When Is The WBA Ex-Dividend Date?

Are you a potential new shareholder? Or, one looking to make an add-on buy?

Then you may want to receive the next Walgreens shareholder dividend distributions. To do so, you must complete your investment BEFORE the ex-dividend date.

WBA’s ex-dividend date falls in the middle of the month PRIOR to when its dividend is paid.

First of all, each quarterly WBA dividend is subject to the approval of their board of directors. As a result, the timing of both the ex-date and the payable date changes slightly each quarter.

Finally, check the company’s investor relations website if the exact dates are important to you. But this discussion should give you a general feel for the timing.

On the other hand, if you purchase long-term buy-and-hold dividend stocks, like me. In that case, you will be sure to receive every dividend that Walgreens (or any stock) pays. Then there is little need to worry about these dates.

Next up, let’s look at Walgreens’ dividend history. Because it is really impressive.

Walgreens’ Dividend History

First of all, Walgreens stock started trading on the public markets in 1927.

Furthermore, Walgreens started paying regular dividends in 1934.

Finally, the WBA dividend has been increased every year starting in 1976.

Walgreens Is A Dividend Aristocrat

The number of consecutive annual dividend increases dating back to 1976 is a big accomplishment. It makes Walgreens one of the relatively few Dividend Aristocrat stocks.

Dividend Aristocrats are companies that have increased their dividends annually. For at least 25 years in a row.

In just a few more years, I expect Walgreens to become a Dividend King like Coca-Cola. Dividend Kings have increased their dividends for at least 50 years in a row.

Many years of dividend increases are fine. But what does WBA’s dividend growth rate look like? Let’s check…

WBA Dividend Growth Rate

First of all, as noted in the table below, dividend growth has been slowing.

Table 1: WBA Compound Annual Dividend Growth Rate

1 Year3 Years5 Years7 Years
As of the company’s most recent fiscal year-end.

Most Recent WBA Dividend Increase

Furthermore, WBA disappointed investors with just a 2% dividend increase most recently.

What does the declining dividend increase rate mean? Is the WBA dividend still safe?

Let’s answer these questions. By reviewing Walgreens’ business fundamentals. Audited financial information.

Also, earnings. And, the WBA dividend payout ratio…

Walgreens’ Revenue Trend

Revenue growth has been consistently strong in recent years.

Chart 2: Walgreens’ Year Revenue Trend

Walgreens' stock analysis: revenue

Growth has primarily come through acquisitions. The purchase of the UK and Switzerland-based Boots Alliance was completed in the fiscal year 2015. Walgreens then acquired half of the Rite Aid store fleet in 2018.

These big acquisitions are now in the past. And, coupled with a difficult competitive environment, revenue growth started to taper off beginning in 2019.

WBA Dividend Payout Ratio Based On Earnings

After the integrations and overhead reductions from the Boots Alliance and Rite Aid acquisitions. Earnings growth flatlined from 2015 through 2019.

Then, the pandemic. It has had a dramatic and negative impact. Especially in the Boots UK stores.

Since they were reliant on non-essential premium beauty and fragrance counters. Also, hundreds of optical stores were closed during the stay-at-home orders.

These events resulted in Walgreens taking a large non-cash accounting write-off in 2020. In order to put a restructuring plan in place. And take action to reduce costs going forward.

There was a partial recovery in the latest year. You can see the impact on earnings per share in Chart 3 below.

Chart 3: WBA Dividends Versus Earnings

Walgreens dividend payout ratio

However, the WBA dividend payout ratio still looks good. It checked in at a very comfortable 40% of earnings in 2019.

And about the same in 2020. After adjusting for the Boots UK non-cash write-off. Versus 64% in the fiscal year 2021.

Speaking of cash. Let’s check the dividend payout ratio against free cash flow.

It is oftentimes a better indicator of dividend payment capacity. As well as dividend safety.

WBA Dividend Payout Ratio Based On Cash Flow

The cash flow coverage of the WBA dividend is very solid. As shown in the chart below.

Chart 4: WBA Dividends Versus Free Cash Flow

WBA dividends and cashflow

Because the dividend consumed less than 40% of the company’s available cash last fiscal years.

WBA Dividend Policy

I’m not aware of any public communications regarding dividend policy from Walgreens.

But, after reviewing all of the facts and figures about the WBA dividend. I can draw my own conclusions about Walgreens’ policy.

First of all, Walgreens intends to pay an annual dividend indefinitely. Since their dividend payment history dates back to 1934. I can conclude dividends have great relevance to the company’s past, present, and future.

Furthermore, Walgreens plans to increase the dividend payment each year. Once again, history tells me so. Having increased the dividend each year since 1976.

Finally, dividend growth will be limited by the WBA dividend payout ratio. It appears management does not want the dividend payout ratio to drift much higher than 40%.

As a result, dividend growth has slowed significantly ever since it has hit that dividend payout level.

Next, let’s talk about the future of WBA dividend growth.

WBA Dividend Growth Projection

I do my best to make a dividend growth forecast for all my dividend stocks. It helps me plan for future dividend income.

Also, the projection gives me a baseline to compare management’s future dividend increases against.

I base my projection on:

  • Historical dividend growth
  • Dividend payout ratios
  • Management’s dividend policy when provided
  • Business fundamentals
  • Company growth strategy

While WBA’s dividend safety is pretty easy for me to see. More on WBA dividend safety a little later. Projecting dividend growth feels a little more difficult.

Because for years, the company had a strong long-term track record of 8-10% annual dividend growth. But the latest WBA dividend increases have been in the 2% – 3% range. Being limited by earnings growth.

What is my forecast? Well, in my opinion, the WBA dividend will grow at the same rate as earnings and cash flow. And I expect annual revenue growth of 2-4%. Coupled with annual earnings growth of 4-6%.

So, I’m going to say over the long-term the WBA dividend will grow like earnings. Or, 4% – 6%. Perhaps a bit less in the short term.

Since Walgreens is taking on some difficult business conditions. And making strategic investments for the future.

Next, let’s look at the company’s financial position. First, credit rating. Then, debt to equity.

Walgreens’ Credit Rating

To finance the Boots and Rite Aid acquisitions, WBA took on more debt. The major credit rating agencies all rate WBA as “Investment Grade – Moderate Credit risk” with a stable outlook.

Source: FINRA bond center

Table 2: Credit Rating Evaluation Grid

Credit rating evaluation grid for each major rating agency

This rating is acceptable to me. Most solid dividend-paying companies are rated investment grade. However, WBA is rated at the lower end of this classification with Baa2 and BBB ratings.

Resource: Check your personal credit score for free with Credit Karma

Walgreens’ Debt To Equity

I judge a company’s financial position based on how assets are financed. With the 2 sources being debt or equity.

I do not like my dividend stocks loaded up with a lot of debt. Excessive debt can negatively impact dividend safety. That is if the company encounters difficult economic times.

On the surface, debt to equity looks pretty good. It checks in at 1.4 to 1.

New accounting rules require companies to report amounts due on lease or rental obligations. It’s not debt in the purest sense. But it is a contractual obligation that must be paid in the future. Just like debt.

As a result, Walgreens has $24 billion in lease obligations primarily from its US retail pharmacy locations. And I included it in the debt to equity calculation above. To use a conservative approach.

It is interesting to note that they are a large customer and revenue source for Realty Income.

Realty Income is a real estate investment trust (REIT). It is another stock I own and follow here at Dividends Diversify.

Related: Realty Income dividend stock analysis

After looking at credit ratings and debt levels. I feel that Walgreens’ financial position is solid. This leads me to a question many investors often ask themselves.

Is the WBA dividend safe? Let discuss.

WBA Dividend Safety

Safe dividends are important for making a consistent dividend income. So, I make a judgment on dividend safety using the information discussed thus far.

  • Business fundamentals
  • Dividend payout ratios
  • Historical dividend track record
  • Credit ratings
  • Financial position

In my opinion, WBA’s dividend is safe from a reduction in the foreseeable future.

But, our WBA dividend stock analysis and review would not be complete. Without a look at the stock’s valuation.

WBA Stock Valuation

So, let’s look at the valuation of WBA stock now. We will check it from several different perspectives.

Based on the methods used below, it appears WBA stock is undervalued and trading at an attractive price.

Take a closer look…

WBA Stock Price To Earnings Ratio

After many years of growth, the WBA stock price peaked in 2015 at nearly $100 per share. On the other hand, the WBA stock price is down significantly from that peak.

WBA stock and dividend analysis

I have owned this stock for many years. So, I have endured these losses in market value.

The stock’s decline has reduced the price to earnings ratio. It stands at about 17 times last year’s earnings.

This is a reasonable PE ratio. So, it looks clear to me that the market has priced in some of the challenges the company faces.

Morningstar Fair Value Estimate

The investment analysis firm Morningstar judges the fair value of WBA stock to be $44 per share.

Resource: Investment research from Morningstar

WBA Dividend Discount Model

The Gordon growth single-stage dividend discount model uses several inputs we have discussed thus far.

  • WBA’s current annual dividend rate
  • Projected WBA dividend growth

In addition, it takes into account my desired return on investment.

Using these assumptions the dividend discount model gives tells me WBA stock is trading slightly above its fair value.

Okay. It’s time to wrap up. Let me share where Walgreens stands in my dividend stock portfolio.

And cover a couple of frequently asked questions. That may be on the minds of investors.

WBA Dividend Stock Analysis – Wrap Up

Having owned my shares for more than 10 years. WBA has a surprisingly small position in my dividend stock portfolio built for regular income.

Furthermore, its performance has been a 2-sided tale.

And with so many different stocks and funds to choose from. It’s good to take a step back and think about the value of this investment.

Is WBA A Good Investment?

Starting in 2011 and continuing through 2016, WBA was one of the best stocks. Since its stock price nearly tripled in value.

On the other hand, starting in 2017, those winnings have mostly evaporated. As the stock has fallen back to levels last seen many years ago.

Leaving me with a small percentage gain. Plus all of the dividends that I have collected.

Needless to say, this is not one of my investing success stories. And 1 reason why WBA remains a minor player in my portfolio holdings to this day.

Resource: Good dividend stock recommendations from Simply Investing

Is WBA A Good Dividend Stock?

However, in my opinion, WBA remains a good dividend stock. Having paid annual dividends since 1934. Also increasing those dividends each year since 1976.

Above all, the WBA dividend is safe. And currently, the stock has a nice combination of dividend yield and dividend growth.

Also, the company has valuable store locations. Also:

  • Strong brand recognition
  • A long history of success
  • Strategy to grow in new areas

So. I plan to hold my existing shares. And given the stock valuation. I may consider some smaller incremental purchases when the stock price falls.

Resource: Manage your total financial picture for free with Personal Capital

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Disclosure & Disclaimer: I am not a licensed investment adviser, financial adviser, or tax professional. And I am not providing you with individual investment advice, financial guidance, or tax counsel. Furthermore, this website’s only purpose is information & entertainment. And we are not liable for any losses suffered by any party because of information published on this blog.

I currently own WBA and collect the WBA dividend