During the 2010s, interest rates seemed trapped within a historically low range. Then the COVID pandemic pinned them at previously unimagined depths. Inflation has reversed all of that. And Wall Street is having a hard time adjusting to the old normal. That's created rare opportunities in the stock market. Some have actually never been seen before.
Rock-solid dividend payer Walgreens Boots Alliance (WBA +0.00%) is more than 40% from its high and could be offering a unique buying opportunity for long-term investors. Not only does it sport a massive dividend yield, but it has also consistently raised that payout for 47 consecutive years. And it has the cash -- and growth plan -- to keep it up for the foreseeable future.
NASDAQ: WBA
Key Data Points
The best dividend yield ever
As dividend histories go, Walgreens Boots Alliance has one to be proud of. Checks have gone out to its shareholders every quarter since prohibition was repealed and the Golden Gate Bridge was built. The year was 1933. That's a long time ago. I can't find any records showing the company has ever offered a higher yield than its current 6.1%. There must be a catch, right?
WBA Dividend Yield data by YCharts
A margin of safety to protect the payout
Many high-yielding stocks have something wrong with them. For some, investors are already expecting the dividend to get cut. Dividends aren't guaranteed, so the yield becomes meaningless. For others, the business is shrinking. Sending all of the profits to shareholders is the only way to get them to stay invested.
Walgreens doesn't seems have an issue making the payments. It's only paying out about half of its free cash flow as dividends. As for growth, recent results don't look great. Sales for the nine months ended in May were slightly more than $100 billion -- just 2% more than in 2021. But the most recent quarters are being compared to peak COVID vaccine. Analysts estimate sales to be flat this year and grow a mere 1.4% next year.
WBA Cash Dividend Payout Ratio data by YCharts
The company's announcement in July that it was only increasing the dividend by one penny per year didn't provide a lot of comfort. But management has a couple of initiatives that it believes will keep revenue moving in the right direction.
Building the next growth engine
In October of last year, Walgreens became the majority owner of VillageMD -- a provider of primary care services that sextupled revenue between 2017 and 2021. Bundling primary care and retail pharmacy operations increases patient satisfaction and utilization of generic drugs. That's good, because generic drugs are typically more profitable for the pharmacy despite being less expensive to consumers. The partnership has 120 clinics and is targeting 1,000 locations by 2027.
Another venture is Walgreens Health. It's a fast-growing segment aimed at improving access, engagement, and convenience. The same October 2021 announcement above also included an investment in CareCentrix. It develops technology to better care for patients outside of hospital visits. Coordinating the care between doctors, pharmacies, and rehabilitation and long-term care facilities, as well as home health, can lead to dramatically better outcomes and significant cost reductions.
Management just augmented those moves by acquiring the portion of specialty pharmacy company Shields Health that it didn't already own. Specialty pharmacies cater to more complex cases like cancer. They already represent half of all non-discounted drug spending according to life science firm IQVIA (IQV 3.28%).
Those all sound like the right moves to create a consumer healthcare ecosystem. So far, Wall Street isn't a believer. Rival CVS Health (CVS 1.57%) -- which is undergoing its own transformation -- trades at more than double the price-to-sales ratio. CVS shares are also up 12% over the past year while Walgreens' are down by a third.
WBA PS Ratio data by YCharts
Boring can be beautiful
Walgreens Boots Alliance isn't a fast-growing company. And it will likely prove to be an exceptionally boring stock to hold in your portfolio. But that's the point. With 13,000 stores globally and a dirt cheap valuation, it's a part of a diversified portfolio you can count on. Investors looking to get paid while adding stability to their portfolio will be hard-pressed to find a better option.
