Walgreen
(
WAG
) recently declared a 28.6% hike in its regular quarterly dividend
to 22.5 cents per share. It is encouraging to note that the company
has been paying dividends for more than 79 years and the recent
hike marks the 36
th
consecutive quarter of dividend increase for the company.
Although the current dividend-payout ratio is 30% for fiscal
2011, the company has set a long-term dividend payout target of
30%-35% of net earnings. Over the last five years, Walgreen's
dividend has grown at a compound annual growth rate of 23.8%.
At the end of second quarter 2012, Walgreens had $1.08 billion
in cash and cash equivalents, compared with $2.2 billion at the end
of February 2010. Year-to-date, the company's net cash provided by
operating activities was $1.8 million.
With a strong cash position, the company always strives to
benefit its shareholders through dividend payments and share
repurchases. During the last reported quarter, the company returned
$570 million to its shareholders through share repurchases and
dividend payments compared with $462 million in the year-ago
quarter.
Moreover, the healthy cash balance enables the company to pursue
suitable acquisitions, which should drive its revenues going
forward. Earlier, in February, specialty pharmacy services provider
BioScrip Inc.
(
BIOS
) and Walgreen entered into a definitive agreement, under which the
latter will acquire certain community specialty pharmacies and mail
service pharmacy business assets of BioScrip for $225 million.
Walgreen anticipates the transaction to have no material impact on
its earnings in fiscal 2012. However, the transaction will be
moderately accretive in fiscal 2013.
On a long-term horizon, we are optimistic about Walgreen. Apart
from strong cash balance, the introduction of new generics should
help improve the company's gross margin in the second half of
fiscal 2012. However, the company has been impacted over the past
few quarters by high unemployment levels and lower discretionary
spending.
Moreover, the termination of the
Express Scripts
(
ESRX
) contract continues to hurt Walgreen sales and has resulted
in a sluggish start for third quarter 2012. In March 2012, the
company recorded a year-over-year dip of 4.3% in total sales to
$6.02 billion.
Currently, Walgreen retains a Zacks #3 Rank (short-term Hold
rating). We have a 'Neutral' recommendation on the stock over the
long term.
BIOSCRIP INC (
BIOS
): Free Stock Analysis Report
EXPRESS SCRIPTS (
ESRX
): Free Stock Analysis Report
WALGREEN CO (
WAG
): Free Stock Analysis Report
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