Walgreen Ups Dividend Once Again

The moneygardener darling, US drugstore chain Walgreen Co. (WAG), has increased its quarterly dividend by 22%. This is the 35th consecutive year that Walgreen has raised its dividend. Walgreen has been growing its dividend at a torrid pace over the past few years. In fact, since 2006 WAG has roughly doubled its dividend.

The stock is now yielding only 1.8%, however a purchase during the depths of March, 2009, would have yielded 2.6% on cost. It is interesting that the company is choosing to increase the dividend at such a high rate given the current slowdown in earnings growth. Walgreen's last quarterly earning report was actually down 9% from 2008. The pay out ratio is rising and the company's traditional objective of rewarding shareholders with growth may be shifting to include paying out cash in the form of dividends.

The company is currently largely focusing on cutting costs and driving productivity. 2009 earnings look like they will come in lower than 2008 after much expense due to cost-cutting restructuring. I remain very bullish on the company long term due to their strong brand, their market position, and US demographic trends. WAG currently makes up about 6% of my portfolio.

Last year in July, Walgreen increased their dividend by about 18%.

Comments

[Paul Zimbardo:]

Also, you cannot ignore the share repurchases as a means of returning value to shareholders. Management has repurchased at least $200M in common shares each of the last four years, highlighted by over $1B in 2007; however, there were no share repurchases in the last quarter.

Jul 09 01:28 PM