In a show of confidence in its growth strategies, Walgreen Co. has unveiled a new $2 billion share repurchase program, twice the size of its existing plan.

The drug store chain said its board of directors has authorized the new program, which expires at the end of 2013 and replaces the previous $1 billion plan that was due to lapse in January 2011. About $655 million remained in the existing stock repurchase program, announced in January 2007, according to Walgreens.

DEERFIELD, Ill. — Walgreen Co. has unveiled a new $2 billion share repurchase program, twice the size of its existing plan.

The drug store chain said Thursday that its board of directors has authorized the new program, which expires at the end of 2013 and replaces the previous $1 billion plan that was due to lapse in January 2011.

About $655 million remained in the existing stock repurchase program, announced in January 2007, according to Walgreens. The company said it has repurchased more than $1.3 billion of common stock since 2004.

The Walgreens board also declared a regularly quarterly dividend of 13.75 cents per share, a 22.2% gain over the year-ago dividend, and set a long-term dividend payout target of 30% to 35% of net earnings. The regular quarterly dividend is payable on December 12 to shareholders of record as of November 16.

In early July, the board had raised the quarterly dividend to 13.75 cents per share from 11.25 cents per share, saying that the increase lifts the annual rate from 45 cents per share to 55 cents per share.

The dividend hike came a couple of weeks after Walgreens reported that its fiscal 2009 third quarter profit was hurt by costs related to its Rewiring For Growth restructuring and Customer-Centric Retailing (CCR) store optimization initiatives, which caught some Wall Street analysts off guard. At the time, management said the dividend increase reflected the company’s confidence in its growth strategies.

Now that confidence appears to be justified. Walgreens on Thursday noted that it generated a record $4.1 billion in cash flow from operations in its 2009 fiscal year as a result of its stronger operating performance and improved working capital.

The retailer beat Wall Street analysts’ earnings forecast for both its fiscal 2009 fourth quarter and full year, and executives said the Rewiring For Growth and CCR efforts are on track — which had analysts encouraged that the initiatives will soon begin to bear fruit.

"Given the solid fourth-quarter beat and outlook for improving trends related to the Rewiring for Growth and CCR initiatives, we are revising our EPS estimates up," Deutsche Bank Securities analyst Bill Dreher said in a research note on Walgreens’ fourth-quarter results. "Our new fiscal 2010 EPS estimate is $2.31, up from $2.20. Our new fiscal 2011 EPS estimate is $2.69, up from $2.49."

Deutsche Bank Securities also lifted its stock price target for Walgreens to $37.50 from $30, he added. As of September 29, when Walgreens reported fourth-quarter results, the company’s shares closed at $37.35.

In Thursday midmorning trading, Walgreens shares were up 25 cents from the previous close to $39.00, putting the stock at the high end of its 52-week price range of $21.28 to $39.67.

"We remain confident in our growth strategy and ability to drive earnings growth, increase return on invested capital and generate strong cash flow," Walgreens president and chief executive officer Greg Wasson said in a statement on the new stock buyback plan. "With that, we have outlined a capital policy to provide further clarity on our future uses of cash."

Under the new capital policy, Walgreens said it aims to maintain a strong balance sheet and financial flexibility, reinvest in core strategies, invest in strategic opportunities that reinforce its core strategies and meet return requirements, and return cash to shareholders from surplus cash flow as dividends and share repurchases over the long term.

Wasson stated that in the last year, Walgreens has paid more than $470 million in dividends to shareholders. "In addition, we have paid a dividend for 308 consecutive quarters and raised our dividend for 34 consecutive years," he commented.