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Here’s a skill-testing question. Which of these companies is the largest in terms of retail sales: Target Corp., Walgreens Boots Alliance Inc., Home Depot Inc., or Amazon.com Inc..

Most people would probably pick Amazon. If you did, you’re wrong. Out of this group, the winner is Walgreens. It’s actually the fifth-largest retailer in the world, based on 2017 retail revenue (Walmart is number one and no one else is even close to it).

Anyone who has visited the U.S. knows that there is at least one Walgreens pharmacy in almost every town of any size (over 8,000 outlets in total). In the U.K., Boots has a similar dominance, with about 2,500 pharmacies.

But you won’t find either brand in Canada, where Shoppers has established itself as the dominant player in the field.

Shoppers was taken over by Loblaw Companies Ltd. in 2014 and no longer trades as a public company. So if you want to invest in a pharmaceutical retailer, you need to look south of the border.

Background: Walgreens Boots is the dominant player in the retail pharmaceutical sector in the U.S. and Europe. With its associated companies, it has a presence in 25 countries and employs more than 385,000 people. The company has one of the largest global pharmaceutical wholesale and distribution networks, with more than 390 distribution centers delivering to more than 230,000 pharmacies, doctors, health centers, and hospitals each year. In addition, Walgreens Boots Alliance is one of the world’s largest purchasers of prescription drugs and many other health and well-being products.

In June, the company became part of the Dow Jones Industrial Average, replacing General Electric Co..

Performance: The stock started the year at $75.51 (figures in U.S. dollars) but dipped to a low of $59.70 in May. It has recovered since, closing on Tuesday at $73.49.

Financials: Third-quarter 2018 results (to May 31) showed sales of US$34.3-billion, up 14 per cent from US$30.1-billion in the same period the year before. For the first nine months of the fiscal year, sales were just over US$98-billion compared to US$88.1-billion last year.

Third-quarter net earnings were over US$1.3-billion (US$1.35 per share, fully diluted). That was up from US$1.2-billion (US$1.07 per share) in 2017. Part of the profit gain resulted from U.S. tax reform, which lowered the company’s effective rate to 7.6 per cent from 12.4 per cent in 2017.

On a per share basis, the increase was 26 per cent, due in part to a reduction in the number of shares outstanding as a result of the company’s stock buy-back plan.

For the first nine months of the fiscal year, the company reported earnings of US$3.5-billion (US$3.51 per share) compared to US$3.3-billion (US$3.02 per share) last year.

Acquisitions: Walgreens Boots expanded its U.S. footprint earlier this year by buying 1,932 stores from competitor Rite Aid Corp. for US$4.4-billion.

Dividends and buybacks: In late June, the company announced it has committed another US$10-billion to its share buyback program. The directors also approved a 10-per-cent increase in the quarterly dividend, to 44 US cents per share (US$1.76 per year). At the current price, the stock yields 1.4 per cent.

Key metrics: The stock has a trailing 12-month price/earnings ratio of 20. That’s much lower than competitor CVS, at 26.8. The forward p/e (based on projected earnings) is 11.44. The market cap is US$73.25-billion.

Ask your financial adviser if the stock is suitable for your account.

Disclosure: I do not own any shares in this company.

Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters.

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