Saturday, 13 July 2013

A Look at Walgreens


I first bought shares of WAG in 2010 for $29.00 (2.41% yield) and added more in June 2012 for $30.21 (3.64% yield). I hold 300 shares at an average cost of $29.40.

My analysis below included this weeks dividend increase of 14.5%.

Average Dividend Yield Analysis*

WAG:US
Year
High Price
Low Price
1Q
div.
2Q
div.
3Q
div.
4Q
div.
Annual Dividend
High Yield
Low Yield
2000
$45.75
$22.06
$0.03375
$0.03375
$0.03375
$0.035
$0.1363
0.62%
0.30%
2001
$45.29
$28.70
$0.035
$0.035
$0.035
$0.03625
$0.1413
0.49%
0.31%
2002
$40.70
$27.70
$0.03625
$0.03625
$0.03625
$0.0375
$0.1463
0.53%
0.36%
2003
$37.42
$26.90
$0.0375
$0.0375
$0.04313
$0.04313
$0.1613
0.60%
0.43%
2004
$39.51
$32.00
$0.04313
$0.04313
$0.0525
$0.0525
$0.1913
0.60%
0.48%
2005
$49.01
$39.66
$0.0525
$0.0525
$0.065
$0.065
$0.235
0.59%
0.48%
2006
$51.60
$39.55
$0.065
$0.065
$0.0775
$0.0775
$0.285
0.72%
0.55%
2007
$49.10
$35.80
$0.0775
$0.0775
$0.095
$0.095
$0.345
0.96%
0.70%
2008
$39.00
$21.28
$0.095
$0.095
$0.1125
$0.1125
$0.415
1.95%
1.06%
2009
$40.69
$21.39
$0.1125
$0.1125
$0.1375
$0.1375
$0.50
2.34%
1.23%
2010
$40.20
$26.26
$0.1375
$0.1375
$0.175
$0.175
$0.625
2.38%
1.55%
2011
$47.11
$30.34
$0.175
$0.175
$0.225
$0.225
$0.80
2.64%
1.70%
2012
$37.75
$28.53
$0.225
$0.225
$0.275
$0.275
$1.00
3.51%
2.65%
2013


$0.275
$0.275
$0.315
$0.315
$1.18


2014


$0.315
$0.315
$0.315
$0.315
$1.26


Stock prices are per calendar year.
13y ave
1.38%
0.91%
Dividends are recorded in the quarter they were paid.
5y ave
2.56%
1.64%







3y ave
2.84%
1.97%







5y
$49.18
$76.88







3y
$44.36
$64.05






Super Cheap
$35.95


The table shows the 3 year average dividend yield to be 2.84% ((2.38% + 2.64% + 3.51%)/3). I use the numbers in the “High Yield” column for obvious reasons.

Using the current annual dividend of $1.26, one would have to pay $44.36 for a 2.84% dividend yield.

Buying the stock at its low in 2012 would have earned you an initial yield of 3.86% because the dividend increase to $1.10 came before the stock hit a low of $28.53. Using the current annual dividend, that corresponds to a stock price of $32.68. The table above shows slightly different numbers, as it does not consider if the stocks low price occurred before or after the dividend increase.

Graham Price

WAG’s 2010, 2011 and 2012 EPS were $2.12, $2.94 and $2.42. 3Y Ave EPS = $2.49.
WAG’s BV is $20.08.
Graham Price = SQRT (3Y Ave EPS * BV * 22.5) = $33.56

Cyclically Adjusted Price to Earnings Ratio

WAG’s 10Y Ave EPS = $1.94
CAPE = Stock Price / 10Y Ave EPS = $191.30 / $8.53 = 25.1
A CAPE below 20 is good.

Conclusion

ADY, Graham Price and CAPE indicate that WAG’s current price of $48.76 is high.

The recovery in stock price from 2012 lows would indicate that investors are warming up to the Walgreens + Alliance Boots merger/acquisition/relationship (not sure what to call it at this point). The reconciliation between Walgreens and Express Scripts is also an important factor.

2013 and 2014 EPS are estimated at $3.16 and $3.50, respectively.

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