Walgreens Boots Alliance (WBA) is the second largest publicly traded pharmaceutical retailer based on its $34 billion market cap; only rival CVS Health (CVS) is larger, observes Ben Reynolds, growth and income expert and editor of Sure Dividend

There’s much to like about Walgreens as an investment today. The company’s management is especially shareholder friendly.

Walgreens has increased its dividend for 45 consecutive years, which makes it a Dividend Aristocrat. And, the company has reduced its share count by 4.2% annually from fiscal 2015 through fiscal 2020.

As an established blue chip stock, Walgreens isn’t going to grow its sales or earnings rapidly. With that said, Walgreens has grown its adjusted earnings-per-share at a solid but unspectacular rate of 6.7% annually from fiscal 2011 through fiscal 2020.

The company has struggled to grow recently due to pricing pressure and COVID-19. We believe the company will return to growth and generate adjusted earnings-per-share growth of around 5% annually over the next five years.

Where Walgreens stock really stands out as a promising investment is its low valuation and high yield. The company’s stock is trading for a price-to-earnings ratio of just 8.0 based on our expected fiscal 2021 adjusted earnings-per-share of $4.98.

The company’s historical average price-to-earnings ratio over the last decade is around 15. We believe Walgreens to be trading at a steep discount to fair value at current prices. 

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Walgreens stock currently offers investors a high 4.7% dividend yield. The company’s dividend is well covered, coming in at under 40% of expected 2021 adjusted earnings-per-share.

This low payout ratio combined with the company’s long history of dividend increases makes it likely that the company’s management elects to continue rising dividends going forward.

Walgreens is offering investors an opportunity to lock in a high yield at current prices. In addition, it's likely the company will continue to reward shareholders with dividend increases.

And with a historically low price-to-earnings ratio, Walgreens stock offers the potential for capital gains if the valuation multiple returns to anywhere near its historical average.

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