2021 Week 7: Walgreens Boots Alliance (NASDAQ: WBA)

The FiveTwenty portfolio received no dividends in the past week.

Past Week Dividend$0
Q1 2021 Dividend$0
Estimated Annual Dividend$476.65
LifeTime Dividend$0
Dividend Scorecard

The capital allocation for the week of 02/14/2021 to 02/20/2021 will be used to establish a position in Walgreens Boots Alliance (NASDAQ: WBA).

WBA – Company Profile

Walgreens Boots Alliance (WBA) is a pharmacy-led health and beauty retail company. WBA is organized into three divisions: retail pharmacy USA, retail pharmacy international, and pharmaceutical wholesale. As of August 31, 2020, WBA was operating in 25 countries and employing 450,000 people. The company runs retail stores under the Walgreens, Duane Reade, and Rite Aid brands in the US. Outside the US its stores use the Boots, Benavides, and Ahumada brands. Official Site | Wikipedia

Dividend Streak45 years
Yield3.67%
Payout Ratio40.52% (reported NA)
P/E10.97* (reported NA)
Minimal Entry Criteria Scorecard

* computed using TTM adjusted EPS of $4.59 Q1 2021

Financials

Does WBA have the financial means to sustain and raise the dividend going forward?

WBA has a record of increasing top line revenue for the last 10 years. GAAP net income over the period has been more volatile. 2020, in particular, had a big decrease in net income.

EPS based on a GAAP basis mirrored GAAP net earnings trends closely. However, adjusted EPS exhibited a healthy growth trend for the start of the decade, before declining in 2019 and then again in 2020. Costs related to the integration of Rite Aid stores and the implementation of the Transformational Cost Management Program were the main factors responsible for the decline in 2019. Adverse impacts from COVID-19 were the cause for further declines in 2020.

For fiscal year 2020 that ended August 31, 2020, WBA posted a 2.0% revenue increase to $139.5 billion. This was followed by a 5.7% year-over-year revenue increase to $36.3 billion for Q1 of fiscal year 2021 (3-months ended November 30, 2020). The last few quarters have shown WBA’s ability to continue growing revenue during uncertain economic times. However, COVID-19 had significant material impact on the bottom line. Adjusted net income saw a decrease of 20.8% for fiscal 2020. That was followed by a 11.2% decrease for Q1 of fiscal year 2021.

Going forward, management expects COVID-19 adverse impact to continue for another quarter. However, they expect improved performance in the second half of the year. For fiscal 2021 company guided low single-digit growth in adjusted EPS. Additionally, the TTM adjusted earnings payout ratio of 40.52% should allow the company to navigate the current economic conditions without endangering the dividend.

Valuation

Are we paying too much for WBA at the current share price?

Over the last decade, the median PE ratio for WBA has been 18.53. WBA currently sports a PE ratio of 10.97 based on TTM adjusted EPS of $4.59. This value is lower than where WBA has traded for the majority of the 2018 – 2020 period.

The current share price of $50.38 is 11.8% above the 50-day moving average and 23.1% above the 200-day moving average. The price is also close to the 75th percentile of the 52-week range.

Overall, WBA shares seem to be trading at a discount to historical valuation and, therefore, offer an attractive entry point.

Yield

How does the current dividend yield compare to historical values?

During the last 10 years, WBA’s yield has been in the range of 1.39% to 5.41%, with a median of 2.08%. (per GuruFocus) The current TTM dividend yield of 3.67% compares quite favorably with historical values.

Thesis

During the past 10 years, WBA has grown its dividend per share at an average rate of 11.00% per year. The rate of growth has slowed down in recent years to an average of 6.50% per year over the last 3 years.

Despite this, recent headwinds WBA has encountered, we believe the company is still well positioned to provide a stable stream of dividends for many years. Additionally, the current yield of almost 4.00% provides the chance to buy WBA at higher yield than what the company has sported historically.

Additional Research


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