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Why Walgreen Is a Top Dividend Stock

By Dan Caplinger - Apr 1, 2013 at 6:05PM

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Walgreen is on the elite list of Dividend Aristocrats. Here's why.

Investors have always been interested in stocks that pay dividends, but lately, low interest rates on bonds and other fixed-income investments have made solid dividend payers even more valuable. Among the most promising dividend stocks in the market is Walgreen (WBA 0.90%), and one big reason is that it is one of the few exclusive companies to make the list of Dividend Aristocrats. In order to become a member of this elite group, a company must have raised its dividend payouts to shareholders every single year for at least a quarter-century. Only a few dozen stocks manage to make the cut, and those that do tend to stay there for a long time.

Walgreen has had its share of ups and downs over the past year, but things are starting to look up for the drugstore giant. Let's take a closer look at Walgreen to see whether it can sustain its long streak of rewarding dividend payouts to investors.

Dividend Stats on Walgreen

Current Quarterly Dividend per Share

$0.275

Current Yield

2.3%

Number of Consecutive Years With Dividend Increases

37 years

Payout Ratio

47%

Last Increase

May 2012

Source: Yahoo! Finance. Last increase refers to ex-dividend date.

The latest on Walgreen
Walgreen suffered a lot during 2012, as its dispute with pharmacy benefits manager Express Scripts (ESRX) led to an exodus of customers to rival drugstore chains. Even after Walgreen and Express Scripts came to a resolution, Walgreen has had a tough time bringing those customers back.

Still, companies that manage to raise their dividends for decades all go through their share of challenges. So far, Walgreen has managed to keep its payouts strong:

WAG Dividend Chart

WAG Dividend data by YCharts.

Moreover, Walgreen has taken some big steps to bolster growth. Its purchase of a 45% stake in Europe's Alliance Boots drug chain last summer was part of its larger strategy to expand across the globe as it seeks to diversify and take advantage of better growth opportunities abroad. More recently, Walgreen's move to replace Cardinal Health as its drug distributor in favor of a 10-year agreement with rival AmerisourceBergen (ABC 1.15%) will enhance its global distribution capacity, and Walgreen and Alliance will take an equity position in AmerisourceBergen as well to cement the partnership.

When will dividends rise again?
Last year, Walgreen raised its dividend during the spring, so investors should prepare for another increase in the near future. What's more important in the long run, though, is whether its major strategic moves will lead to a return to stronger growth. If so, then Walgreen should remain a Dividend Aristocrat for a long, long time.

Click here to add Walgreen to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

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Stocks Mentioned

Walgreens Boots Alliance, Inc. Stock Quote
Walgreens Boots Alliance, Inc.
WBA
$43.55 (0.90%) $0.39
Express Scripts Holding Company Stock Quote
Express Scripts Holding Company
ESRX
AmerisourceBergen Corporation Stock Quote
AmerisourceBergen Corporation
ABC
$152.89 (1.15%) $1.74

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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