Walgreens Boots Alliance, Inc. (WBA) is a storied retailer that has grown dividends for 42 years. Bob Ciura recently highlighted Walgreens in the Dividend Aristocrats in Focus series. And in 2016, our own Ben Reynolds wrote about Walgreens on gurufocus.
But, 2017 was tough year for Walgreens. It was tough, because of strategic uncertainties including questions over Rite Aid acquisition and speculations around whether Amazon would enter the pharmacy business. This all took place during a year when there was a general malaise in the retail sector in general; Amazon and e-Commerce were taking over the world.
So, I thought it would be timely to dig into the company's recent financial performance to analyze how safe the company's dividends might be. Will Walgreens keep growing its dividends and be crowned a Dividend King in a few years' time?
Past Performance Is…
Here's a pop quiz for you. Is the below quote from the 2017 or the 2016 annual report?
“Walgreens, the nation's largest drugstore chain, recorded its 28th year of consecutive sales and earnings growth. During the year, the company opened 471 stores while 108 were closed.”
The answer: neither!
That quote comes from Walgreens' 2002 Form 10-K. In that same report, the management also shared that the company operated 3,880 locations in 43 states plus Puerto Rico. And “the company plans to operate more than 7,000 stores by 2010.”
By August 31, 2009, the Company disclosed that it “operated 7,496 locations in 50 states, the District of Columbia, Puerto Rico and Guam.” That detail comes out of the 2009 Form 10-K.
I don't know if you have any experience in forecasting for a Fortune company. But, that level of planning and execution is astounding. In that brief look-back, we see a company that set a concrete plan, then executed on that plan on time (in fact, ahead of time). Those dividends don't grow themselves through magic. Growth happens through value-adding effort of all the people who run the company for the shareholders, from the people defining the highest level of strategy to the people fulfilling orders at the distribution centers.
In my opinion, history is a very important indicator of dividend safety. When it comes to dividend aristocracy, it seems, past performance is an indicator of future success!
One other historical tidbit I found interesting. Back in 2002, Walgreens generated 17% of its sales from Florida stores. In fact, the following table summarized Walgreens sales distribution:
Source: Walgreens 2002 10-K.
Imagine, nearly half the revenues came from the top four states. Back in 2002, there was just one reportable segment. No international operations. Walgreens was an American “retail drugstore business.” Since 2002, Walgreens has gone onto steadily grow organically and through acquisition, all the while focusing and expanding its business platform.
