Tuesday, December 10, 2013

Recent Buy: WAG

Dec 10, 2013: Bought 44 shares of WAG at $56.72 per share.

Walgreen Company (WAG), also known as Walgreens, is headquartered in Deerfield, Illinois. The company operates drugstores in more than 8,000 locations across the U.S. In addition to selling prescription drugs, WAG also sells over-the-counter medications, household items, food and beverages, personal and beauty care products, and photofinishing services.

WAG is a Dividend Champion with an impressive 38-year streak of dividend increases. It pays quarterly dividend in March, June, September and December. Starting Yield on Cost is 2.22%.

Not accounting for dividends, WAG essentially matched the performance of the S&P 500 over the last 10 years:

WAG's 10-year history of earnings per share shows a nice uptrend and its dividend growth is very impressive:

Analysis of WAG

Fair value estimates for WAG range from $34.41 (Graham Number method) to $66.20 (S&P Capital IQ), with a mean of $56.65. WAG trades at about fair value to the mean fair value estimate.

The following table provides some key statistics for WAG:

The Chowder Dividend Rule requires that the sum of WAG's dividend yield and its 5-year dividend growth rate exceed 12%. For WAG, the sum is an impressive 25.94%. WAG also passes the following of my selection criteria:
  • Dividend payout ratio is below 65% (49.22%)
  • Debt to Equity ratio is below 50% (26.00%)
  • 7-year weighted average dividend growth rate is at least 7% (24.08%) 
WAG's trailing twelve month P/E ratio is 23.13x, which is above the preferred threshold of 16x. On the other hand, WAG's forward P/E is 15.11x. Also, the estimated 5-year total payback percentage is only 9.74% instead of at least 16%, as stated by my selection criteria.

WAG is a 5-star stock: (*******)

Other ratings for WAG

 Zacks Rating 3 Hold
 S&P Capital IQ's Stock Report (*****) Hold
 MorningStar Rating (*****)
 The Motley Fool's CAPS Rating (*****)
 Thomson Reuters's StockReport+ (8/10) Positive 

Concluding Remarks

I like WAG for its long track record of dividend increases and its exceptional dividend growth history. Earlier this year, the company increased its regular quarterly dividend by 14.5% to 31.5c per share, in line with its long term dividend payout ratio of 30-35%. The increase represents a compound annual growth rate over 5 years of 23%. In addition to dividend payments, WAG plans to return cash to shareholders by repurchasing up to $2 billion of its common stock through December 31, 2015.

WAG operates in a competitive environment, with strong competition from Target (TGT), Wal-Mart (WMT), and CVS Caremark (CVS). Also, there is competition from supermarkets and mail-order operations. Industry conditions remain challenging, as insurers reduce reimbursement rates and increase prescription co-payments. The weak macroeconomic environment, with high unemployment and rising food and gas prices, will drive customers to be more value-driven and to reduce discretionary spending. These factors could limit same store sales growth.

My purchase of WAG is the first holding in DivGro in the Consumer Staples sector. I now have at least one holding in each sector in my watch list.

44 shares of WAG represent $55.44 of expected annual dividend income, which increases DivGro's projected annual dividend income to $2,875.98.

WAG is the 24th holding in DivGro and my final purchase for 2013.

Full Disclosure: Long TGT, WAG


  1. I think WAG is set up for some solid DG for the next several years. Glad to have you as a fellow shareholder. I just wish I had picked up more shares and earlier.

    1. Looks like you've done really well with WAG already! I'm not particularly thrilled with an opening yield on cost of 2.22%, but with the dividend growth I'm hoping for, that should change quickly.


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