A Fallen Dividend Aristocrat Stock
- July 13, 2010
- Dividend Investing, Dividend Stocks, Top Dividend Stocks
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Investors in Walgreen’s have to be tremendously disappointed with the stock’s performance in 2010. Last year, Walgreen’s (WAG: 34.21 +3.26%) investors enjoyed a 49% surge in the stock price, but it’s been a very different story in 2010. WAG shares have fallen 23% this year and the stock has badly underperformed both the S&P 500 index and their peers.
Walgreens had been a fan of dividend investors and is currently a member of the exclusive S&P 500 dividend aristocrats (stocks increasing their dividends for at least 25 consecutive years). In fact, Walgreen’s has increased their dividend each year since 1977. Unfortunately, Walgreen’s current 1.9% dividend yield hardly makes up for the massive losses experienced this year from their falling stock price.
Of course the more relevant question is whether dividend investors should buy Walgreen’s stock at their current levels?
Despite the 23% decline in their stock price this year, Walgreen’s shares still don’t appear to have an extremely compelling valuation. WAG stock currently trades at a trailing P/E of 13.7, which is still higher than Walmart’s (WMT: 61.96 +0.55%) 12.9 and CVS (CVS: 43.00 -1.31%) 11.6.
Much of the fall in Walgreens stock price can be attributed to two events:
1. The recent dispute with CVS over filling customer prescriptions – this dispute has now been resolved, but highlighted the risk of future disputes that could arise.
2. The acquisition of Duane Reade – the acquisition appears to be progressing smoothly, but there are always inherent risks that the integration will be more costly than originally anticipated.
Of course all is not bad for Walgreens. The company stands to benefit from the aging population. Walgreens stores will also likely see a benefit from the healthcare reform bill as nearly every American will soon have health coverage.
Walgreens is expected to grow revenues by more than 6% this year and in 2011. That’s a higher growth rate than Wall Street is expecting from either Walmart or CVS.
Finally, dividend investors are looking for Walgreens to announce another dividend increase this month. Last year, the company increased their quarterly dividend by 22%. And in 2009 the dividend was raised by 18%. A similar 20% increase in the quarterly dividend would increase Walgreens yield to about 2.3%. Maybe that will be the catalyst to lift this fallen dividend aristocrat stock.
