Pharmacy retailer Walgreens Boot Alliance (NASDAQ:WBA) was as soon as thought of a secure dividend inventory. These days are lengthy gone.
Within the final three years alone, the inventory has misplaced greater than 80% of its worth. And never solely did it finish a decades-long streak of accelerating its distributions, it additionally reduce its dividend alongside the best way. The corporate is within the midst of a turnaround and plans to promote property and reduce prices aggressively in an try to shore up its enterprise.
Issues went from dangerous to worse for the health care actions as he struggles to discover a means out of his present downfall. The query many traders who’re nonetheless ready could also be asking themselves is: With a yield above 10%, might an extra dividend reduce happen?
On January 4, 2024, Walgreens launched its first quarter outcomes for the brand new fiscal yr and introduced a steep dividend reduce. The 48% discount within the payout could have come as a shock to traders who have been relying on this recurring revenue.
The truth, nonetheless, was that the dividend was unsustainable and it was actually solely a matter of time earlier than the corporate needed to do one thing. It stated it was seeking to enhance its money move and would take a “balanced strategy to capital allocation priorities,” which included plans to develop its healthcare enterprise.
The corporate is predicted to announce its subsequent quarterly outcomes on January 9, at which period info may be launched on any modifications to its dividend.
Walgreens has labored to cut back prices and its free money move has improved; In two of the final 4 quarters, the corporate generated constructive free money move. And for 2 quarters in a row, its free money move was greater than it paid out in dividends.
However total profitability stays a serious concern. Walgreens has posted an working loss in three of the final 4 quarters, and given the massive query marks surrounding its healthcare technique, it could be a while earlier than the corporate can return to revenue . Reduce your number of stores and being lighter will certainly assist, however these modifications will even take time.
What struck me concerning the launch saying the 48% dividend reduce was that administration nonetheless wished to keep up what they thought of a “aggressive yield.” In the present day, the yield exceeds 10% and will simply be halved once more and nonetheless stay aggressive.
I believe one of the best transfer for Walgreens could be to easily droop dividend funds at this level and restore its operations earlier than worrying about paying common dividends once more. However one other dividend reduce seems to be a chance, as the corporate’s funds are nonetheless not that robust.
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