In an effort to boost shareholders' wealth,
) recently announced a 14.5% hike in its quarterly dividend. The
drug retailer will now pay a dividend of 31.5 cents per share,
higher than the earlier rate of 27.5 cents per share.
Subsequent to the dividend hike, the annual dividend rose to
$1.26 from $1.10 earlier. The increased dividend will be paid on
Sep 12, 2013 to stockholders of record on Aug 20.
The news sparked investor optimism as the stock price alleviated
3.01% (or $1.40) on the day of the announcement. The company's
dividend yield improved to 2.6% following the dividend hike. The
current dividend payout ratio hovers over 37% for Walgreens.
The recent dividend raise is in line with the company's strategy
to maintain long-term dividend payout ratio of 30%-35%. The hike
reflects a compound annual growth rate (CAGR) of about 23% for
dividends over the last 5 years.
It is encouraging to note that the company has been paying
dividends for more than 80 years and the recent hike marks the
38th successive year of dividend increase for the company.
Notably, Walgreens is positioned on a healthy dividend growth
track. Thus, the solid dividend payouts should appear attractive
Walgreens' cash and cash equivalents were almost $3 billion in
the third-quarter fiscal 2013, up 50.1% from the year-ago
quarter. Moreover, it generated operating cash flow of $1.4
billion and free cash flow of $1.1 million, reflecting sequential
improvement from the second quarter.
With a strong cash position, the company always strives to
benefit its shareholders through dividend payments and share
repurchases. Walgreens' strong balance sheet has enabled it to
consistently hike dividends.
We note that fiscal year-to date, Walgreens did not repurchase
any shares under its current buyback program to repurchase up to
$2 billion of its common stock through Dec 31, 2015. Investors
may also look forward to rewards in the form of considerable
share repurchases with optimism.
While Walgreens' strategy to reward shareholders boost optimism,
the persistent lower-than-expected sales remains a matter of
concern. The company also missed the earnings mark when it
reported third-quarter results in late June.
Currently, the stock carries a Zacks Rank #3 (Hold). While we
remain on the sidelines for Walgreens,
), carrying a Zacks Rank #1 (Strong Buy) warrants a look. Zacks
Rank #2 (Buy) stocks such as
) are also worth considering.
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