Dividends Value » CVS

Walgreen Co. (WAG) Dividend Stock Analysis *

D4L — Mon, 21 Mar 2011 07:30:07 +0000

This article originally appeared on The DIV-Net March 14, 2011.

Linked here is a detailed quantitative analysis of Walgreen Co. (WAG). Below are some highlights from the above linked analysis:

Company Description: Walgreen Co. is the largest U.S. retail drug chain in terms of revenues, this company operates more than 8,000 drug stores throughout the U.S. and Puerto Rico.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

WAG is trading at a discount to only 1.) above. The stock is trading at a slight discount to its calculated fair value of $42.98. WAG earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

WAG earned two Stars in this section for 2.) and 3.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. WAG earned a Star for having an acceptable score in at least two of the four Key Metrics measured. Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (2001-2004, 2002-2005, 2003-2006, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. The company has paid a cash dividend to shareholders every year since 1933 and has increased its dividend payments for 36 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

WAG earned a Star in this section for its NPV MMA Diff. of the $4,080. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as WAG has. If WAG grows its dividend at 18.5% per year, it will take 6 years to equal a MMA yielding an estimated 20-year average rate of 3.9%.

Memberships and Peers: WAG is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company’s peer group includes: CVS Caremark Corporation (CVS) with a 1.5% yield, Rite Aid Corp. (RAD) with a 0.0% yield and Wal-Mart Stores Inc. (WMT) with a 2.8% yield.

Conclusion: WAG earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks WAG as a 4 Star-Buy.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $85.71 before WAG’s NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 36 years of consecutive dividend increases. At that price the stock would yield 0.82%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 12.1%. This dividend growth rate is well below the 18.5% used in this analysis, thus providing a margin of safety. WAG has a risk rating of 1.00 which classifies it as a Low risk stock.

With over 7,700 drugstores, WAG offers unmatched convenience with one of the the most recognized brand names in the retail pharmacy business. The company enjoys a strong market share within the relatively stable U.S. retail drug industry. However, pressures from non-traditional competitors and potential adverse legislation could quickly weaken WAG’s advantages. Although the stock is trading slightly below my $42.98 fair value price, the 1.7% dividend yield will prevent any near–term purchases. For additional information, including the stock’s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I held no position in WAG (0.0% of my Income Portfolio). See a list of all my income holdings here.

6 Dividend Stocks Raising Dividends and Expectations *

D4L — Fri, 14 Jan 2011 07:30:18 +0000

Gregg S. Fisher noted in a 2009 Forbes article that the assumption that investors are rational agents is bunk. He went on to say “We are not rational. We’re human. Even the most brilliant investor can be swayed by emotions into making irrational decisions that result in financial loss.”

Logic has very little to do with short-term movements in stock prices. Knowing this, there are some things that long-term buy-and-hold investors can do to profit from from these irrational moves in the market, such as following a disciplined approach of acquiring stocks that routinely increase their dividends.

Below are several companies that have recently increased their cash dividends to shareholders:

Developers Diversified (DDR) is a self-administered and self-managed real estate investment trust that acquires, develops, leases and manages shopping centers across the U.S. January 10th the company increased its quarterly 100% dividend to $0.04/share. The common dividend is payable April 5, 2011 to shareholders of record at the close of business on March 22, 2011. The ex-dividend date is March 18, 2011. The yield based on the new payout is 1.2%.

Epoch Holding (EPHC) provides investment advisory and investment management services for retirement plans, mutual funds, endowments, foundations and high net worth individuals. January 10th the company raised its quarterly dividend 20% to $0.06/share. The dividend is payable on February 11, 2011 to shareholders of record as of January 28, 2011. The ex-dividend date is January 26, 2011. The yield based on the new payout is 1.6%.

CVS Caremark (CVS) is a leading operator of retail drug stores and pharmacy benefit management services in the U.S. January 11th the company increased its quarterly dividend 43% to $0.125/share. The dividend payable on Feb. 2 to shareholders of record on Jan. 21. The ex-dividend date is Jan. 19. The yield based on the new payout is 1.42%.

International Paper (IP) is a leading worldwide producer and distributor of printing papers and packaging products. January 11th the company raised its quarterly dividend 50% to $0.1875/share. The dividend is payable March 15, 2011 to shareholders of record on February 15, 2011. The ex-dividend date is February 11, 2011. The yield based on the new payout is 2.7%.

Alexander’s (ALX) leases, manages, develops, and redevelops properties in the United States. Its properties include office and retail properties, and shopping centers. January 12th the company increased quarterly dividend 20% to $3.00/share. The dividend is a 20% increase from the current rate of $2.50. The increased dividend will be payable on February 22, 2011 to stockholders of record on January 28, 2011. The ex-dividend date is January 26, 2011. The yield based on the new payout is 3%.

Vornado (VNO) owns a diverse group of properties, including Northeast retail properties, New York City office buildings, and other interests. January 12th the REIT raised its quarterly dividend to $0.69/share. The dividend is payable on Feb. 22 to shareholders of record on Jan. 28. The ex-dividend date is Jan. 26. The yield based on the new payout is 3.28%.

Selecting stocks with increasing dividends is critical for an income growth strategy. The above list contains stocks that recently raised their dividends; it is not a list of recommend buys. As always, due diligence should be performed before buying or selling any stock. For a list of stocks with a long string of consecutive cash dividend increases, see this list.

Full Disclosure: No position in the aforementioned securities. See a list of all my income holdings here.

(Photo Credit)

Best Stocks for 2011 *

D4L — Wed, 22 Dec 2010 07:30:55 +0000

It is a great time of year! The Christmas music, decorations, family gatherings, holiday plays and stock picks. Stock picks? Yes, ’tis the season for stock predictions! Virtually every financial writer will pen an article selecting his or her top picks for the upcoming year. I enjoy reading them and the logic behind the picks. As a long-term buy and hold investor, generally most aren’t useful for me; nevertheless, I find them entertaining and sometimes there is a gem to be found. Here are some picks for 2011…

Jon Birger at Fortune notes that there’s still a real buying opportunity in growth stocks, with this years selections slanted toward commodities. Here are the 10 picks for 2010:

Mosaic (MOS) potash production capacity has grown 10% since 2006 and is expected to increase another 60% between now and 2020. And as it rises, the company’s stock seems likely to follow. Currently yielding: 0.3%

Agrium (AGU) earnings are on pace to jump 60% in 2010, and analysts are expecting another 44% bump next year. Currently yielding: 0.1%

Analysts expect Dow‘s (DOW) 2011 earnings to be up 32% — on the heels of a 212% earnings improvement this year. (2009 was a disaster.) Best of all, Dow’s stock isn’t priced to reflect the growth company it has become. Currently yielding: 1.8%

Transocean (RIG) is well indemnified against blowout-related liability. Oil prices have risen 17% since May as global demand has rebounded to 2007 levels and production isn’t keeping up with demand. Currently yielding: 0.0%

Royal Dutch Shell (RDS-B) is a safe place to get a dividend yield. But it has a really good set of strategic initiatives going for it too. Currently yielding: 5.1%

Lennar (LEN) has a history of making lemonade from real estate lemons. During the S&L crisis in the early 1990s, it made a small fortune buying distressed properties at 30¢ or 40¢ on the dollar and then reselling them for 50¢ or 60¢. Currently yielding: 0.9%

East West Bancorp (EWBC) is now believed to be the largest Chinese-American-focused bank in the country. Americans boast a savings rate 19% higher than the national average. Currently yielding: 0.2%

Royal Caribbean (RCL) is trading at a modest 13 times 2011 earnings, but deserves a P/E closer to 17, which was Royal Caribbean’s average valuation from 1997 to 2007. Currently yielding: 0.0%

Entropic (ENTR) is priced more like a value stock: At $9 a share, it trades at 11.7 times projected 2011 earnings. Currently yielding: 0.0%

Apple (AAPL) is definitely not overpriced. Especially not for a company so well positioned in such fast-growing markets. Currently yielding: 0.0%

In selecting their best stocks for 2011, CBS Money Watch focused on value stocks and asked Tom Forester, manager of the Forester Value Fund, to come up with the “top five value stocks for 2011.” His list of companies are mostly household names whose neglect or avoidance by investors leaves them trading at bargain valuations. The list includes:

Microsoft (MSFT) has grown cheap over the years in line with the ebbing of the software maker’s reputation as an innovator. Currently yielding: 2.3%

Hewlett-Packard (HPQ) reputation has been tarnished by the antics of some of the bosses making their way through the executive suite’s revolving door. The result is a PE ratio of about 7.5 times next year’s earnings as investors continue to shun the stock. Currently yielding: 0.8%

Chevron (CVX) is the cheapest of the oil super-majors and is more sensitive than its rivals to the price of oil because more of its business is related to production rather than activities like refining. Currently yielding: 3.3%

CVS Caremark (CVS) trading at roughly 11 times next year’s earnings, investors seem to be ignoring CVS’s valuable pharmacy benefit management business. Currently yielding: 1.0%

Best Buy (BBY) should benefit from strong holiday sales of gadgetry like iPads, Kinect Xboxes, phones and big-screen TVs; and should continue to get a boost from the demise of Circuit City. Currently yielding: 1.7%

Greg Sushinsky in an article on Investopedia selected a sampler of some potent large-cap stocks which pay attractive dividends. Here are his selections and reasons for choosing them:

Verizon Communications (VZ) is expected to offer iPhones next year. Estimates are that it may land as many as 10 million activations when Verizon Wireless begins selling the iPhone. This will be a healthy addition to Verizon’s revenue stream. Currently yielding: 5.6%

Merck (MRK). underlying business has healthy margins and cash flow generation. Even if you scale back the revenue and earnings projections the stock looks cheap. Currently yielding: 4.2%

Conoco Phillips (COP) and other integrated oil company stocks tailed off after the BP (BP) oil spill in the Gulf of Mexico. Currently it sells for less than nine times earnings. Currently yielding: 3.4%

Unilever Plc (UL) has a wide mix of businesses, and the stock got a recent enthusiastic analyst upgrade. The stock is a bit pricey now, but it is projected to continue its earnings rebound. Currently yielding: 3.8%

Coca Cola (KO) continues to grow its earnings despite economic headwinds. The underlying growth and value of the company makes its dividend as solid and stable as any. Currently yielding: 2.8%

As a long-term, buy-and-hold income investor, many of the stocks in the above lists don’t meet my criteria for a buy. Dividend investors are looking for stocks that will perform well over the long run, not just 2011. As such, I prefer to start with this list of stocks.

Full Disclosure: Long CVX, KO. See a list of all my income holdings here.

(Photo Daniela Baack)

6 Dividend Stocks Increasing Their Yield *

D4L — Fri, 15 Jan 2010 11:30:03 +0000

Just as picking fruit from a mango tree does not harm it, living off dividends does not damage the investment’s ability to produce future results. A mango tree’s life will easily span an entire generation. Similarly, well-chosen dividend investments will not only provide income in retirement, but can be passed to your children who can continue to reap the benefits.

Below are several select companies that recently decided to reward their shareholders with fruits of their labor in the form of increased cash dividends:

Epoch Holding (EPHC) is an investment advisory and investment management services company. January 11th the company increased its quarterly dividend 67% to $0.05/share. The dividend is payable on February 12, 2010 to shareholders of record as of January 29, 2010. The ex-dividend date is January 27, 2010. The yield based on the new payout is 1.84%.

CVS Caremark (CVS) is a leading operator of both retail drug stores and pharmacy benefit management services in the U.S. January 12th the company raised its quarterly dividend 15% to $0.0875/share. The dividend is payable February 2, 2010 to holders of record on January 22, 2010. The yield based on the new payout is 1.03%.

Duncan Energy Partners (DEP) gathers, transports, markets, and stores natural gas, as well as in transporting and storing natural gas liquids (NGLs) and petrochemicals in the U.S. January 12th the company raised its quarterly distribution 4.1% to $0.445/unit. The cash distribution will be paid Friday, February 5, 2010, to unitholders of record at the close of business on Friday, January 29, 2010. The ex-dividend date is January 27, 2010. This distribution is the fifth consecutive quarterly distribution increase. The yield based on the new payout is 7.35%.

Linear Technology (LLTC) manufactures high-performance linear integrated circuits. January 12th the company boosted its quarterly dividend to $0.23/share. The dividend will be paid on February 24, 2010 to stockholders of record on February 12, 2010. LLTC is a Dividend Achiever and has raised its dividend for 17 consecutive years. The yield based on the new payout is 3.08%.

Fifth Street (FSC) is a specialty finance company that lends to and invests in small and mid-sized companies. January 13th the company increased its quarterly dividend 11% to $0.30/share. The dividend is payable on March 30 to shareholders as of the close on March 3. The yield based on the new payout is 10.15%.

Shaw Communications (SJR) is a Canadian communications company that provides broadband cable television, Internet and satellite direct-to-home services to apx. 3.4 million customers. January 14th the company boosted its dividend 5% to $0.8775/share. Shaw’s dividends are declared and paid on a monthly basis and this increase will commence March 30, 2010. The yield based on the new payout is 4.37%.

While a mango tree gives fruit for several generations, a great dividend stock will give increasing dividends each year. For a list of stocks with a long string of consecutive cash dividend increases, see this list.

Full Disclosure: No position in the aforementioned securities. See a list of all my income holdings here.

(Photo Credit)

Bank of America Headed Back to the TARP ATM *

D4L — Fri, 16 Jan 2009 11:30:00 +0000

Someone once said that there is no such thing as bad publicity. I think Bank of America (BAC) would take exception to that statement. BAC has been in the news all week and it has not been flattering or reassuring to it shareholders. This once proud dividend aristocrat continues to struggle even after slashing its dividend.

Monday, Citigroup (C) issued some cautious comments on BAC and said investors should be braced for a very challenging 4Q. C cut Q4 EPS estimates, expects another dividend cut and expects the company raise fresh capital, but will wait for a better environment. Ultimately, C sees cumulative credit losses of $165 billion for 2008-2011, with only about 33% recognized so far.

Yesterday it was reported that BAC needs more aid from the government for its Merrill Lynch acquisition. To date, BAC has received $25 billion from the Treasury Department’s Troubled Assets Relief Program (TARP). According to the The Wall Street Journal, BAC needs additional assistance to deal with an ugly quarterly report from Merrill. By mid-day Thursday shares were down 20% to around $8.

Not all news was bad this week. Instead of looking for a government handout, several companies continue to increase the cash given to their shareholders through higher dividends. Here are a few:

Robbins & Myers (RBN) Increases Dividend to $0.04/share (Yield 0.96%)
CVS Caremark (CVS) Boosts Qtr. Dividend 10.5% to $0.0725 (Yield 1.1%)
Cintas (CTAS) Boosts Annual Dividend to $0.47 (Yield 2.02%)
Linear Technology (LLTC) Boosts Qtr. Dividend to $0.22/share (Yield 3.98%)
Monsanto (MON) Boosts Qtr Dividend 10% to $0.265 (Yield 1.38%)
Pentair (PNR) Boosts Qtr. Dividend from $0.17 to $0.18 (Yield 2.97%)
Shaw Communications (SJR) Raises Annual Dividend to $0.053 (Yield 3.80%)
Family Dollar (FDO) Raises Qtr. Dividend by 8% to $0.135/share, (Yield 1.89%)

When BAC cut its dividend it no longer met the criteria for inclusion in my income portfolio. There is a reason that my most basic investing rule is to immediately sell a stock after it cuts its dividend; I BAC sold at $28.51/share after its first dividend cut.

Disclosure: No position in the aforementioned securities.

(Photo: Steve Woods)