Competition from CVS Health (NYSE:CVS), Amazon.com (NASDAQ:AMZN), and local pharmacies are increasing pressure on Walgreens Boots Alliance (NASDAQ:WBA), threatening the 118-year-old company that's paid a dividend for 346 consecutive quarters. Walgreens is paying a 3.31% forward dividend yield, an attractive return over the current 10-year Treasury rate of 1.8%, but investors are questioning whether Walgreens can keep growing against a changing business environment.

A white pill bottle with various pills and tablets spilling out it, forming a question mark.

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Amazon's disruptive acquisition

The slow 37% drop from a 52-week high of $86.31 was caused in part by a threat to sales from Amazon's recent acquisition of PillPack in 2018 for $753 million. An at-home prescription drug delivery company, PillPack offers increased convenience to consumers, eliminating lines, and automating refills -- and it's free to consumers aside from the cost of the copayment. As Amazon has a Prime customer base over 100 million, the threat is significant for market dominators Walgreens and CVS.

Walgreens stated in its 2018 annual report that 78% of the United States' population lives within five miles of a Walgreens retail location or subsidiary of Walgreens. A store count of more than 9,600 and a 21.4% market share provide Walgreens significant leverage to compete against its largest rival CVS and new rival PillPack.

Walgreens reported an active Balance Rewards membership count of 88 million, which is 12 million less than Amazon's estimated Prime memberships. With a strong returning customer base, Walgreens can stay relevant in the market, but the adoption of delivery services in addition to providing incentives for customers to walk into its locations will be key moving forward.

Teaming up with Microsoft (NASDAQ:MSFT) for a seven-year deal to transition its data to Microsoft's Azure public cloud, Walgreens intends to transform healthcare delivery. The data integration will allow customers to reach healthcare data through the platform, improving medication adherence, decreasing hospital readmissions, and reducing emergency room visits. This will allow for insurance companies, pharmacies, and healthcare providers to access information in one place -- allowing for efficient delivery services of a patient's medication. In addition, Walgreens teamed up with FedEx (NYSE:FDX) in 2017 to provide next-day prescription delivery for $4.99. 

Stability and value

Looking into the financials, Walgreens had $839 million cash on hand during the third quarter due to share repurchases in combination with acquisitions -- $979 million less than the third quarter of 2018. A long-term debt balance of $12.127 billion isn't concerning, as Walgreens maintains a debt-to-equity ratio of 0.73, which is better than CVS's 1.5 debt-to-equity ratio. Analysts are predicting 2019 total revenues of $135.8 billion from Walgreens -- which would be a 3.2% increase year over year. 

An advantage Walgreens has over Amazon is a 3.35% forward dividend yield -- as Amazon doesn't pay a dividend. A 29.49% payout ratio closely resembles CVS's dividend yield of 3.04% and a 28.67% payout ratio, however, Walgreens gains a slight reach in valuation. Trading at a forward price-to-earnings of 9.25 over CVS's 9.41, Walgreens takes a small lead.

Looking at sustainability, Walgreens' total trailing-12-month debt of $17.61 billion is minuscule compared to CVS' $91.92 billion. When looking at overall revenue to net income, Walgreens has a net income margin of 3.53%, while CVS reports 1.91%. In other words, Walgreens is generating $89.7 billion less than CVS with a trailing-12-month net income of $4.82 billion against CVS's $4.33 billion.

Recent selling has created an opportunity

Predicting Walgreens' stability is difficult as disrupter companies such as Amazon's PillPack create speculations around Walgreens' ability to sustain or grow market share. Operating nearly 10,000 U.S. stores (and more than 11,000 globally) is not easy in a fast-changing consumer market, but Walgreens is moving with the market. Offering delivery services, adopting technology into its business model, and incentivizing customers to walk into locations help maintain a competitive advantage.

With a forward price-to-earnings ratio of 9.25 and a sector median of 20.98 in addition to a price-to-sales of 0.38 with a sector median of 1.25, Walgreens is showing value. Walgreens recently announced it was closing 200 stores to consolidate market territory, adopting the delivery model to reach consumers while lowering costs. Taking into consideration the current price and dividend yield, income investors can feel safe holding Walgreens as a long-term position.