Core holdings are often considered to be the best available companies to own as their competitive advantages have set them apart from their peers, suggests Ben Reynolds, editor of Sure Dividend.

For investors of different ages, core holdings can be much different. For example, younger investors may lean towards growth stocks, while investors in retirement typically seek out dividend stocks. After all, when a person is no longer receiving a paycheck from employment, there is often a continued need for investment income.

This is why we recommend investors in retirement consider dividend growth stocks such as the Dividend Aristocrats, as they have increased their dividend for at least 25 consecutive years. Walgreens Boots Alliance (WBA) is a Dividend Aristocrat with a safe dividend, and a high 4.8% dividend yield.

Business Overview & Recent Events

Walgreens Boots Alliance is the largest retail pharmacy in both the United States and Europe. Through its flagship Walgreens business and other business ventures, the company has more than 13,000 stores in the U.S., Europe and Latin America.

This has been a challenging year for Walgreens stock, which has declined 25% year-to-date. Walgreens was a major beneficiary of the coronavirus pandemic, as demand for vaccines and healthcare products soared. The flip side of this is that as the pandemic has faded, the company’s financial results have suffered from unfavorable comparisons.

On June 30th, 2022, Walgreens reported Q3 results for the period ending May 31st, 2022. Sales from continuing operations declined by 4% and adjusted earnings-per-share declined by 30% year-over-year. The declines were mostly due to peak COVID-19 vaccinations in the prior year’s quarter.

Still, Walgreens’ earnings-per-share exceeded analysts’ consensus by $0.03. And, the company has beaten analysts’ estimates for 8 consecutive quarters. For the upcoming year, Walgreens reiterated its guidance for low-single digit growth of its annual earnings-per-share. This means the company should have little trouble continuing to increase the dividend.

Dividend Safety & Expected Returns

Walgreens’ competitive advantage lies in its vast scale and network in an important and growing industry. The payout ratio remains reasonable, projected at 36% for the current fiscal year. This means Walgreens has a very secure dividend payout, even if earnings-per-share do not grow in the near-term. Walgreens has increased its dividend each year for over 40 consecutive years.

And, the decline in the share price has elevated Walgreens’ dividend yield to 4.8%, nearly a decade-high yield for this Dividend Aristocrat. We expect Walgreens to grow its annual earnings-per-share by 3% over the next five years, which should allow for modest hikes to the dividend each year.

WBA stock has a price-to-earnings ratio of 7.5, significantly below our fair value estimate of 10. This leads to total expected returns of 13.1% at the current share price.

Over the long-term, we view Walgreens as a beneficiary of a major trend in the U.S., which is the aging population. The U.S. has a large population of 65+, which will likely result in healthcare spending growing at a rate above GDP growth. As there will always be a need for healthcare products and services, even during recessions, we view Walgreens as a suitable dividend stock for retirees.

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