The company’s long dividend streak makes Walgreens Boots Alliance one of just 50 Dividend Aristocrats. Dividend Aristocrats are stocks with 25+ years of consecutive dividend increases. Click here to see all 50 Dividend Aristocrats.
$1 invested in Walgreens in 1986 would have grown to $73 today (with dividends reinvested). This comes to a compound annual growth rate of 15.1% a year.
Note: 1986 is 1st full year of price data for WBA in Yahoo! Finance. Logarithmic scale used in image.
And as we’re about to see, these dividend increases were not immaterial. The payout boosts have been especially impressive as of late.
Performance Over The Last Decade
Here’s a look at Walgreens business and security performance from fiscal year 2006 through fiscal year 2015:
This is the sort of information that enables you to think about both the past results of the firm along with the important factors moving forward. On the top line Walgreens posted very impressive overall sales growth. The company went from generating $47 billion in sales to over $100 billion by 2015.
Perhaps just as noteworthy was the idea that this type of growth was not at the expense of the quality of sales. Walgreens’ net profit margin actually increased during this period, resulting in company-wide earnings growth nearing 10% annually.
The share count for Walgreens is an interesting note by itself. From 2006 through 2011 the number of common shares outstanding was steadily declining.
There were just over 1 billion shares outstanding in 2006 as compared to under 890 million by 2011. That’s a rate of decrease of nearly two and a half percent per year. However, since that time Walgreens has had a good amount of acquisition activity. As such the share count began to climb, resulting in nearly 1.1 billion common shares outstanding today.
As a result of the increased share count, the earnings-per-share growth rate trailed that of the overall earnings growth rate of the company as a whole. Essentially the long-term shareholder had to split the earnings pie (which has been growing very nicely) with a slightly larger number of shareholders.
The past valuation for Walgreens is also interesting. If the beginning earnings multiple and the ending multiple remain the same, share price growth rate will be equal to earnings-per-share growth rate. This was not the case.
Instead, the earnings multiple went from the high-20’s down to the low-20’s. This P/E compression lead to share price growth of a bit over 6% annually – still solid, but much slower than the pace of business growth. Incidentally, this is a good demonstration of the ebbs and flows of share prices and the finicky share price bids that can result.
The dividend growth for Walgreens has been exceptional – clocking in at nearly 20% per annum for a decade. Part of this was a result of the nearly 10% annual earnings growth. The other part resulted from a payout ratio that went from around 15% all the way up to 35%. Still, the beginning dividend yield in 2006 was below 1%, so the benefit of the dividend was naturally positive but not overwhelmingly so.
In total an investor would have seen annual returns of just over 7% from fiscal year 2006 through 2015. As a point of reference, that’s the sort of thing that would turn a $10,000 starting investment into $20,000 or so after nine years.
Walgreens was helped by its strong revenue growth, expanding payout ratio and increasing profit margin in the past. The security was hindered a bit by the increase in the share count to go along with P/E compression. Overall past investors saw quite reasonable results from a high quality firm.
Of course all of that is in the past. Let’s think about the future.
