Updated April 14, 2021 by Bob Ciura

High quality dividend growth stocks have the potential to provide oversized returns for investors over the long term. And for retirees, dividend growth stocks can help replace employment income.

A good place to look for the best dividend growth stocks is on the Dividend Aristocrats list. This is a select group of 65 companies in the S&P 500 Index with more than 25 consecutive years of dividend increases.

For a full downloadable table of all 65 Dividend Aristocrats, plus some key financial metrics like value for money, click the link below:

We review all 65 Dividend Aristocrats every year. Next up is pharmacy giant Walgreens Boots Alliance (WBA). Walgreens has increased its dividend for 45 straight years. However, the past few years have been difficult for the company.

Even so, Walgreens has a strong brand and continues to be an industry leader. It still has room for growth and a long history of annual dividend increases.

Plus, Walgreens stock is now returning 3.4%, and the company keeps increasing its dividend every year.

Business overview

Walgreens was founded in 1901. In its current form, the company was founded when Walgreens merged with Alliance Boots in 2014. The merger created the largest retail pharmacy in the US and Europe.

Today, together with its holdings using the equity method, Walgreens is represented in more than 25 countries, busy more than 450,000 people and has more than 21,000 stores.

Investor sentiment has been subdued in recent years due to fears of increasing competition from online retail giants like Amazon (AMZN).

January 6thth, 2021 Walgreens announced the sale of the majority of the company’s Alliance Healthcare business and a Part of Retail Pharmacy International’s business in Europe for $ 6.5 billion to AmerisourceBergen (ABC).

March 31stst2021 Walgreens announced fiscal year 2021 second quarter results for the period ended February 28th2021. For the quarter sales rose 4.6% to $ 32.8 billion which is strong International segment growth. The USA Pharmacy segment led the way in the last quarter.

Source: Investor Presentation

The adjusted result is the same$ 1.2 billion or $ 1.40 per share compared to $ 1.3 billion or $ 1.52 per share in the second quarter of 2020. In addition, Walgreens raised its forecast for the 2021 financial year to mid– –to– –high single– –digit-adjusted EPS growth.

Growth prospects

Walgreens’ primary catalyst in the US is growth through new business and customers. This was achieved through acquisitions. For example, Walgreens acquired over 1,900 Rite Aid (RAD) stores, three distribution centers, and associated inventory for $ 4.375 billion.

As mentioned earlier, the Rite Aid deal has already helped Walgreens increase bottom line. Walgreens took on the real estate commitment but did not take any debt from Rite Aid. In addition, there are significant cost synergies to accelerate earnings growth from the acquisition.

From 2010 to 2019Walgreens increased the result– –Per– –share from 12.0% per year. This was driven by a combination of Factors including above– –Line Growth ($ 67th Billions to $ 137th Billion), net profit margin expansion (3rd2% to 4.0%) and a Reduction in the number of shares issued.

In 2020, results fell dramatically, and the company released a – –21% EPS Decrease, mainly due to the COVID– –19 pandemic. The three factors of suin the past – –Sales growth, Margin expansion and lower number of shares – –were challenged at the same time in a nutshell– –term.

Looking to the future, Walgreens should continue to increase earnings over the long term due to the very favorable macroeconomic conditions.

The US, in particular, is an aging population. As consumers get older, there will be greater demand for health products and recipes. Walgreens still has a strong market position and record.

Competitive advantage and recession performance

The first competitive advantage for Walgreens is its size. Walgreens has one of the world’s largest wholesale and distribution networks with around 400 distribution centers serving more than 230,000 pharmacies, doctors, health centers and hospitals.

With such a massive global presence, it is very difficult for a competitor to compete on the same scale as Walgreens. Despite the difficulties retailers face, there is still an operational benefit to physical stores. Most of the United States lives in close proximity to a Walgreens store. As a result, it is very difficult for competitors to gain market share.

Regardless, Walgreens benefits from a strong brand and operates in a stable industry. Consumers cannot do without prescriptions and health products. This helps keep profits afloat even during recessions. For example, Walgreens only saw a slight drop in earnings per share during the Great Recession:

  • 2007 earnings per share of $ 2.03
  • 2008 earnings per share of $ 2.17, up 6.9%
  • 2009 earnings per share of $ 2.02, down 7.2%
  • 2010 earnings per share of $ 2.16, up 6.9%

Walgreens increased earnings per share from 2007 to 2010. This performance followed with earnings growth of over 20% in 2011. Earnings per share almost tripled from fiscal year 2009 to fiscal year 2019, which corresponds to a CAGR of more than 24% during this period. Out of caution and taking into account recent challenges, we expect earnings growth of 5% annually through 2025.

It’s clear that Walgreens has a recession-resistant business model that allows it to grow its dividend every year.

Valuation and expected return

Walgreens has a current share price of ~ $ 54 and a midpoint for adjusted earnings per share of $ 5.00 for fiscal year 2021. As a result, the stock trades at a price to earnings ratio of 10.9. This is a low rating for a highly profitable company, especially one with a strong brand and leadership position in its industry.

However, due to Walgreens’ slower growth and current headwinds, we have a price / earnings ratio of 10 at fair value for the stock.

If the P / E multiple were to drop to 10, the annual return for investors would decrease 1.7% per year over the next five years. In addition, Walgreens will generate returns from earnings growth and dividends. The expected returns could be as follows:

  • 5% earnings per share growth
  • 3.4% dividend yield
  • -1.7% multiple expansion

On this forecast, the total annualized return could reach 6.7% over the next five years. This is a decent, if unspectacular, expected return for Walgreens stock. As such, we rate the stock as held due to its solid dividend yield and regular dividend increases, but the stock is not a buy due to valuation concerns.

Final thoughts

When it comes to retail stocks, there is a lot of fear in the market. This can also be seen with strong retailers like Walgreens. Not only are investors concerned about a sluggish environment for brick and mortar retailers, but the risk of Amazon entering the healthcare industry is a constant overhang.

Walgreens remains a strong company with a great brand and positive growth prospects. The addition of Rite Aid has helped the company increase its market share in prescription drugs.

Additionally, Walgreens offers an above-the-market dividend yield. Given the business fundamentals, the company shouldn’t have a problem increasing its dividend every year.

Thank you for reading this article. Please send feedback, corrections, or questions to [email protected]



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