In the next two years, its expected that Big Pharma companies will see $30
billion in U.S. sales for some of its major drugs up for generic competition.
Thats because the patent protection on drugs like Pfizer s (NYSE: PFE ) Lipitor
and Bristol-Myers Squibb s (NYSE: BMY ) Plavix are expiring. This is great news
for both Walgreen (NYSE: WAG ) and CVS Caremark (NYSE: CVS ), as drugstores make
48% gross margins on generic drugs compared to 9% for branded drugs. Both
companies stand to win in this equation. But ultimately, investors must decide
which is the better choice. Here are three reasons you should sell CVS and buy
WAG: Dividend Aristocrat Are you familiar with the Dividend Aristocrats index ?
These are companies within the S&P 500 that have increased dividend payments
annually for 25 consecutive years. And, during the past five years, the Dividend
Aristocrats index has beaten the S&P 500 by 420 basis points annually. Its not
some crazy theory. Investing in these stocks works because companies that
consistently increase dividends also increase earnings per share. Walgreen is on
the list. CVS isnt. DividendGrowthInvestor.com uses three criteria to shrink the
list of 42 companies to a more elite list by restricting eligibility to
companies whose P/E ratio is less than 20, whose dividend payout ratio is less
than 60% and whose current dividend yield is at least 2.5%. Now remember, CVS
doesnt even make the Dividend Aristocrats index. This alone suggests WAG is the
better stock, at least according to dividend investors. For the record, however,
Walgreens P/E is 11.2, its dividend payout ratio is 31% and its dividend yield
is 2.7%. At the present moment, Walgreen meets all three of the stricter
criteria. Express Scripts This could change. Walgreen is in the midst of a
contract dispute with Express Scripts (NASDAQ: ESRX ), one of the countrys
largest pharmacy benefit management companies. Many of Express Scripts customers
use Walgreen to fill their prescriptions. If they cant agree on a service
contract whereby both benefit, Express Scripts customers will have to go
elsewhere. If this happens, Walgreen stands to lose $5 billion in annual
revenue. On the surface, it seems that Walgreen has everything to lose in this
dispute. Express Scripts management appears confident it will be able to find
new homes for affected customers. Other pharmacies including CVS might
benefit. But lets think about whats being proposed here. If Walgreen cant make
enough from each prescription filled through its association with Express
Scripts, whats the point of having the business in the first place?
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