WAG and Alliance Boots

[Dividend Watcher]

I thought it was a pretty shrewd move when WAG's management announced they were going to acquire a stake in Alliance Boots a couple years ago. WAG has pretty much saturated the U.S. market with stores. The A.B. deal gave them international exposure and also a chance to cross-market each company's proprietary and regional products.

Once they settled the Express Scripts brouhaha, WAG could again focus on the store re-vamps, expanding their services such as the in-store clinics and getting back to selling prescriptions. Whether they got a tangible benefit from the spat, it hasn't appeared to hurt them too badly. It seems that Mr. Market agrees as the price has run up so far the yield has dropped to around 1.8% and the trailing P/E is in the mid-20s.

Then I read this syndicated Reuters article today on Yahoo! Finance:

Quote:LONDON, May 15 (Reuters) - Alliance Boots said it had seen more benefits than expected so far from its partnership with U.S. drugstore operator Walgreen Co, and reported an 18.5 percent rise in underlying attributable profit.

Walgreen bought a 45 percent stake in Alliance Boots in 2012, with an option to buy the rest in 2015.

Alliance Boots, which runs Europe's largest pharmacy chain, reported sales for the year to March 31 rose 4.3 percent to 23.4 billion pounds ($39.26 billion). Underlying profit was 840 million pounds.

"Our joint synergy programme with Walgreen is increasingly providing us with significant financial benefits," Alliance Boots said in a statement. "While still at an early stage, we are pleased with the overall progress of the programme, total synergies achieved to date (are) tracking ahead of target."

Deerfield, Illinois-based Walgreens reported a lower-than-expected profit for the quarter ended Feb. 28 but said it expected a bigger boost this year from its partnership with Alliance Boots.

Alliance Boots said particularly good progress had been made with a joint venture established with Walgreens to lead global relationships with pharmaceutical and other suppliers. It is also working on a joint own-brand sourcing programme in Asia and rolling out selected Boots products in Walgreens stores.

Alliance Boots said it expected the trading environment to remain challenging as European governments seek to curb healthcare spending and it faces a slow recovery in the UK, but it hopes for some improvement in the latter part of the year.

It reiterated its desire to pursue acquisitions in Latin America and China after it agreed to buy Grupo Casa Saba SAB de CV's pharmacy networks in Mexico and Chile.

Last night I was running network cable in an office being remodeled in a 70 year-old building. As I was crawling through the ceiling, I found an old newspaper so I dragged it out with me to take a look at it. Turned out to be the local business section from March 1991. Funny to see stock quotes in fractions again.

To add further reinforcement that I'm not trimming WAG any more, I looked up WAG in the stock tables and was quite surprised. Price was $31-5/8 (that's $31.625 for you youngsters), the P/E was 22 and the annual dividend was listed as $0.46 to yield 1.4%.

So it seems that WAG has similar metrics today as they had 23 years ago. In the meantime, they managed to increase the dividend around a 20% annual rate (+/- a little according to longrundata.com). I don't know what the price did but it had to have done something. You don't increase dividends at a 20% annual rate and end up with a similar yield 23 years later. It was quite a slap in the face to me. Maybe I shouldn't ignore those lower yielding dividend growth stocks if there's something to be seen "behind the curtain".

For all you youngsters in age or in mindset, you might want to take a dip in the WAG pool when the price pulls back a little. I think their strategy will propel their growth quite well in the future.

The full article is here.