Very recently, Phil Wohl covered fourth-quarter earnings for Walgreen (NYSE:WAG). The report was excellent: 18% growth in earnings, bested expectations, sales of prescription products up 16%, all of that great stuff. There's no question that Walgreen's blood is pumping, even, as Phil pointed out, in a very competitive landscape that includes not only such obvious enemies as CVS (NYSE:CVS) and Rite Aid (NYSE:RAD) but also Target (NYSE:TGT) and, perhaps scariest of all, the dreaded Wal-Mart (NYSE:WMT), which is "always" trying to take business away from any retailing category.

We now come to the first monthly report of sales for Walgreen, as the company's fiscal year kicked off Sept. 1. Total sales jumped more than 13%, while same-store sales (which is a measure of sales at locations open for more than a year) expanded by 9.3%; the gains reflect a comparison with September 2003, and as can be seen, they're quite nice.

Walgreen is in expansion mode, there's no question about it. Phil's piece reported that more than 200 new locations came online in the fourth quarter alone and that approximately 365 additions will be generated in the coming year on a net basis. Total sales will certainly be driven higher as a result, assuming trends continue. The same-store component will become particularly important in light of the build-out, though, as solid growth is best achieved through maintaining sales in existing stores as well as building new ones.

When it comes to big gorillas in this sector, Walgreen certainly qualifies. Investors looking to get into drug retailing can certainly look to this stock. However, one thing that should be kept in mind is that expansion carries a certain risk with it, especially retail expansion. There is always worry over whether or not this kind of growth is being executed at an appropriate and manageable pace.

As an investor, what I'd look for is a consistent increase in the dividend along with store expansion. If one were to place a long-term bet on Walgreen at this point, one should make sure to keep an eye on the dividend quality as the number of stores goes up (this includes not only the percentage value of the increase itself but also the payout value, which is a ratio of dividends to earnings). The company increased its dividend more than 20% back in July, and as this dividend history shows, Walgreen is in a decent trend regarding this area. With a current yield of approximately 0.60%, capital growth is the focus of the total return on this stock, making the dividend payout more of an indicator than a palpable engine of appreciation at this stage; nevertheless, it should be watched.

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Fool contributor Steven Mallas owns none of the companies mentioned.