Walgreen reports Q3’14 results

This past Tuesday, Walgreen, one of my core DGI holdings based on their stellar dividend growth record, posted their Q3 2014 numbers.

From their announcement:

  • Adjusted third quarter earnings per diluted share increase 7.1 percent to 91 cents, compared with adjusted earnings per diluted share of 85 cents in year-ago quarter; GAAP earnings per diluted share increase 15.4 percent to 75 cents compared with 65 cents in last year’s third quarter
  • Third-quarter sales increase 5.9 percent over year-ago quarter to $19.4 billion as total sales in comparable stores increase 4.8 percent
  • Combined fiscal year-to-date synergies with Alliance Boots reach approximately $367 million and are now estimated to deliver second-year combined synergies of $400-$450 million
  • Strategic partnership with Alliance Boots contributes 15 cents per diluted share to third quarter adjusted results

Walgreen has spent some time in the news recently with their rumoured tax inversion plans centering around the recent purchase of European drugstore chain, Alliance Boots. While the investment community sees great upside to the plan, potentially driving shares into the $90 range, the media, in their own special way, is driving the “anti-America” agenda, declaring the plan “an affront to US taxpayers”. Reps for Americans for Tax Fairness call the plan “unfair and deeply unpatriotic”. From north of the border, I don’t really have a dog in this fight; my needs remain simple: WAG needs to follow the rules, and this is how this past quarter performed.

TTM earnings of $2.94 represent an increase of 30%, year over year, and a trailing PE of 25x.

Dividend payout as a function of free cash flow remained stable at 29% – well below my 65% barrier – and 47% for the year; that level of payout leaves me comfortable for this quarter’s dividend increase (fingers crossed).

Total return for the 5 year period came in at a healthy 17%; clearly WAG will remain in my US portfolio for the foreseeable future.

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