This Retailer Is Marching Toward Kingship

This week S&P 500 Dividend Aristocrat Walgreens Boots Alliance continued its streak of paying dividends for 355 straight quarters -- and raising its dividend for 46 consecutive years. This latest boost was a modest 2.1% to $0.4775 per share or $1.91 on an annualized basis, roughly a 4.1% dividend yield at the current share price. That's well above the current yield of 2.4% with CVS Health shares, but the bigger question is whether the company has enough dividend fire power left to become a Dividend King. As a reminder, while an S&P 500 Dividend Aristocrat has to both be a member of the S&P 500 and raise its dividend for at least 25 consecutive years, a King has to deliver at least 50 consecutive years of dividend increase. It's no small feat, and those who are able to cross that hurdle tend to be companies with financial acumen and management teams that know how to run their businesses for the long haul. Can WBA shares make it? Let's find out. Before we get going, let's understand that to become a King, Walgreens will need to raise its divided each year between 2022 and 2025. With its payout ratio near 40%, odds are high the company can do it, even if it's earnings over the next few years are relatively flat. But I don't think that's likely to be the case. According to the consensus estimate collected and published by Refinitiv, Walgreens is expected to steadily increase its earnings per share to $8.04 by 2025, up from $0.52 in 2020 and $4.31 in 2019. As we have all come to understand, because the pandemic 2020 tends to get a pass, but even during that year, not only was Walgreens earnings per share positive, it also boosted its dividend. More signs of a quality management team. While some will give varying reasons for Walgreens' ability to drive revenue, EPS and cash flow growth in the coming years, when I step back I see a very powerful tailwind driving its business. The aging of the U.S. population and the reason for that focus is Walgreen's domestic retail and pharmacy business accounted for almost 98% of its operating profit over the last nine months. Estimates from the Census Bureau have every Baby Boomer over the age of 65 by 2030, which means nearly one in every five U.S. citizens will be in that group. This means there will be far greater demand for a host of services, including health care and prescriptions. Total national health expenditures were estimated to be around $4 trillion by 2020, growing to $5 trillion by 2025, according to the U.S. Census Bureau and the Centers for Medicare and Medicaid Services. By 2025, U.S. providers will face a collective shortage of about 500,000 home health aides, 100,000 nursing assistants, and 29,000 nurse practitioners, Mercer estimates. Why prescriptions? According to findings from Merk & Co , almost 90% of older adults regularly take at least one prescription drug, almost 80% regularly take at least two prescription drugs, and 36% regularly take at least five different prescription drugs. Why? Because they are more likely to have more than one chronic medical disorder, such as high blood pressure, diabetes or arthritis. Nursing home residents are prescribed an average of seven to eight different drugs to take on a regular basis. Even if we see a reduction in the number of prescription drugs taken by older Americans, overlaying those forecasts on top of one another points to a powerful tailwind for Walgreens as well as CVS Health and Rite Aid . But back to Walgreens and its dividend prospects, whether the company ups its dividend payout ratio, grows its EPS or employs both of those levers, odds are high the retailer is easily closing in on Dividend King status.

This Retailer Is Marching Toward Kingship

Walgreens Boots Alliance should benefit from an ageing population and increased demand for medications.

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