Walgreen Company (WAG): Will This Retail Drugstore Chain Continue to Heat Up?

The rise in Walgreen’s profitability may have contributed to the board’s decision to raise the dividend payment to almost $0.32 cents per share – a 14.5% bump. This reflects an annual dividend yield of 2.5%. If the company’s profitability continues to rise, it is likely to lead to a higher dividend yield.

In comparison, CVS’ dividend yield is nearly 1.5%. Rite Aid doesn’t pay dividends and doesn’t seem to anticipate starting paying anytime soon. Based on the above, Walgreen Company (NYSE:WAG)’s rise in profitability and high dividend yield makes the company a bit more preferable to Rite Aid or CVS.

Valuation

Let’s turn to examine these companies’ enterprise value and their EV-to-EBIT ratio to compare their pricing.

The table below shows the summery of data of all three companies and the average for the pharmacy-services industry.

The yearly EBIT is based on the last four reported quarters. As seen, Although Rite Aid has a much lower P/E than Walgreen or CVS, the former has a much higher EV-to-EBIT ratio, which suggest Rite Aid’s pricing is relatively high. On the other hand, both Walgreen and CVS have a slightly higher EV-to-EBIT ratio than the market average has. This means, at face value, both companies aren’t too expensive.

Takeaway

The drugstore retail market doesn’t seem to progress as fast as the U.S retail market does. Nonetheless, leading pharmacy retailers such as Walgreen Company (NYSE:WAG) and CVS are still very reliable companies with stable growth in earnings, dividend payments and a strong hold on the drugstore-retail market. Therefore, even though these companies have some risks and weak points, they are still reasonably valued and might continue their upward trend in the stock market.

The article Will This Retail Drugstore Chain Continue to Heat Up? originally appeared on Fool.com and is written by Lior Cohen.

Lior Cohen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Lior is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.