The Board of Directors of Walgreens ( ) approved a 22.2% quarterly dividend increase from 11.25 cents to 13.75 cents, payable on September 12, 2009, to shareholders on record as of August 21, 2009. The annualized dividend is raised to $0.55 from $0.45 per share.

The dividend increase is testimony of the company’s confidence in its key growth strategies and its ability to generate strong cash flow going forward. WAG is the largest national retail pharmacy chain in terms of revenue and profitability and has paid a dividend in 307 straight quarters (more than 76 years) and raised its dividend for 34 consecutive years. The company has increased its dividend by an average compound annual rate of more than 21% over the last five years. The company operated 6,902 drug stores in 50 states in the U.S. and Puerto Rico as of June 30, 2009.

The company reported strong third-quarter sales increasing 8.0% to a record $16.2 billion. In addition, the company’s cash flow from operations for the third quarter of 2009 increased 54% year-over-year. Furthermore, in June WAG reported sales of $5.2 billion representing an increase of 9.0% from $4.8 billion in the comparable same period in 2008. Sales in comparable stores (those open at least a year) increased 3.4%.

As pharmacy patients fill more prescriptions during the week than on weekends, such calendar day shifts had a positive impact on the month. In addition, June 2009 had one more weekday compared to June last year. Therefore, calendar shifts positively impacted total comparable store sales by 1.5 percentage points, comparable pharmacy sales by 2.3 percentage points and prescriptions filled in comparable stores by 2.2 percentage points. However, comparable front-end sales decreased 0.9% versus an increase of 3.4%, attributable to weaker sales of seasonal items compared to the prior year.

Rite Aid ( ), experienced a sales decline of 0.6% in June. Sales rose 1.4% in pharmacy, while fell 4.5% at the front end. Further, total June sales also declined 2.5% to $1.97 billion and sales at the Brooks Eckered stores also continued to be weak year-over-year. The other strong player in the industry is CVs Caremark Corporation ( ), which reported strong 2009 first-quarter results and also raised guidance for the full year.

We currently rate all three stocks WAG, RAD, and CVS a Hold. Moreover, Wal-Mart’s foray into the retail generic drug market has created some pricing pressure.