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Walgreens: The Contrarian Dividend Growth Stock

Published Tue, 11 Jun 2019 13:22:24 -0400 on Seeking Alpha

A tenet of successful dividend growth investing is to constantly be searching for high-quality companies that are in sectors resilient to the ebbs and flows of the economy.
Given the demographics of the United States and the increasing demand for prescription drugs as the population ages, it should come as no surprise that spending on prescription drugs is expected to grow 4.6% this year and at an average CAGR of 6.1% through 2027.
While there are no doubt risks associated with pharma chains mainly through political and regulatory action, and this is reflected in the fact that Walgreens Boots Alliance (WBA) stock has fallen 23.6% YTD, I believe that the company will be able to execute its turnaround plan and return to meaningful growth early next decade, which is why I'll be discussing the reasons for my bullishness towards Walgreens at its current price.
I'll be discussing the company's dividend safety and growth profile, its turnaround plan, the balance sheet, risks to consider, and the company's current stock price with relation to its fair value. I will then conclude by offering my estimated average annual total returns over the next decade.
Reason #1: A Very Safe Dividend With High Single Digit Growth Potential Over The Long-Term
In order to assess the safety of Walgreens' dividend, we'll be examining both the company's EPS payout ratio and FCF payout ratio.
During FY 2018, Walgreens generated diluted EPS of $5.05 while paying dividends per share of $1.60... Read more