Comparing 3 Drugstore Companies

Includes: CVS, RAD, WBA
by: Mark Riddix

Dividend investors are always in search of stocks that are increasing their dividend payouts. Investors have historically been able to look to financial companies and utility stocks for dividend payouts. While these sectors have been historically reliable for income, there is another sector that has a few companies which are slowly starting to increase the dividends that shareholders receive: The drugstore industry.

The drugstore industry is an incredibly competitive landscape with consumers having a number of choices to choose from. Drugstore companies have to pay close attention to comps, margins, and profitability if they wish to grow the values of their stocks over time. Let’s take a look at the three biggest players in the industry and see if their fundamentals make them a good dividend stocks.

Walgreens (WAG) just bumped its dividend up substantially, giving investors a 28.6% increase. Walgreens is now paying investors 90 cents per year, up from its old payout of 70 cents. The recent increase in dividend payments comes from the company’s fantastic quarterly earnings report last quarter. Walgreens saw its profitability jump 30%. The stock is currently yielding 2.1%, which places it in the category of a potential income play over the next year.

The dividend news was not the lone good news for Walgreens investors. The company is buying back $2 billion in shares. This should help to increase the long term value that shareholders are receiving.

CVS Caremark (NYSE:CVS) may have a lower dividend payout and dividend yield than Walgreens, but the company has been taking steps to boost its dividend payments. CVS increased its dividend 42% this past year to 50 cents per share. The drugstore chain has ample earnings and cash flow to not only cover its dividend but also to boost the payout. The company is paying out 17% of earnings in the form of dividends based on this year’s earnings.

CVS is currently completing a stock buyback of its own. The company launched a $2 billion buyback program last year and is expected to complete the program by the end of the year. The positive earnings and financials should keep income investors feeling good about owning CVS stock.

Rite Aid (NYSE:RAD) remains the industry laggard and is still awash in red ink. The company still has too much of a debt burden to even consider paying investors a dividend. If Rite Aid can ever return to profitability, investors could consider owning its shares. Although I am no fan of the company’s stock, Rite Aid did provide investors with a glimmer of hope last month.

Rite Aid beat industry expectations with its last earnings release. Rite Aid’s loss of 7 cents per share was smaller than investors had expected. Revenue was also higher than expected at $63.9 billion. I still wouldn't call Rite Aid a great stock investing opportunity, but the company does seem to be on the right track.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.