Walgreens Boots Alliance (WBA) stock was one of the worst-performing S&P 500 stocks on Friday, January 31, after the drugstore chain announced it is suspending its quarterly dividend.
"This change in capital allocation is aimed at strengthening WBA's balance sheet by reducing debt over time and improving free cash flow, as the company works toward achieving a retail pharmacy-led turnaround underpinned by a sustainable economic model," Walgreens said in a statement.
The company added that its "cash needs over the next several years," which includes litigation and debt refinancing, "were important considerations as part of the decision to suspend the dividend."
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The move comes just three weeks after Walgreens beat top- and bottom-line expectations for its fiscal 2025 first quarter and maintained its full-year profit forecast.
However, based on Walgreens' forecast for full-year earnings of $1.40 to $1.80 per share, its 25 cents per share quarterly dividend would have resulted in a full-year payout ratio [how much it costs a company to pay its dividend as a percentage of earnings] of 55.6% to 71.4%. And this would not be a prudent use of capital in a turnaround situation.
Walgreens did not provide any indication as to if or when the dividend would be reinstated.
Is Walgreens stock a buy, sell or hold?
Walgreens Boots Alliance's struggles have extended to the price charts, as well, with shares of the former Dow Jones stock down roughly 60% in the past 12 months. Unsurprisingly, Wall Street is on the sidelines when it comes to the consumer discretionary stock.
According to S&P Global Market Intelligence, the average analyst target price for WBA stock is $12.35. While this represents implied upside of more than 20% to current levels, it's more likely a case of analysts failing to keep up with the falling share price vs expectations for a major rally. Meanwhile, the consensus recommendation is Hold.
Financial services firm UBS Global Research is one of those with a Neutral rating (equivalent to a Hold) on WBA stock, along with an $11 price target.
"A [dividend] cut was widely anticipated by investors given depressed cash flow, elevated leverage, and limited balance sheet flexibility barring a sale of assets," says UBS Global Research analyst Kevin Caliendo. The company will save roughly $86 million by suspending its dividend, "which will likely be used to manage near-term working capital needs, pay down near-term debt, and potentially fund improvements into the core business," he notes.
Caliendo adds that the dividend cut may also indicate that a potential buyout or large asset sale will not occur in the near term.
Related Content
-
I'm a Financial Pro: This Is How You Can Guide Your Heirs Through the Great Wealth TransferFocus on creating a clear estate plan, communicating your wishes early to avoid family conflict, leaving an ethical will with your values and wisdom and preparing them practically and emotionally.
-
To Reap the Full Benefits of Tax-Loss Harvesting, Consider This Investment Strategist's StepsTax-loss harvesting can offer more advantages for investors than tax relief. Over the long term, it can potentially help you maintain a robust portfolio and build wealth.
-
Social Security Wisdom From a Financial Adviser Receiving Benefits HimselfYou don't know what you don't know, and with Social Security, that can be a costly problem for retirees — one that can last a lifetime.
-
Take It From a Tax Expert: The True Measure of Your Retirement Readiness Isn't the Size of Your Nest EggA sizable nest egg is a good start, but your plan should include two to five years of basic expenses in conservative, liquid accounts as a buffer against market volatility, inflation and taxes.
-
Dow Adds 472 Points After September CPI: Stock Market TodayIBM and Advanced Micro Devices created tailwinds for the main indexes after scoring a major quantum-computing win.
-
October Fed Meeting: Live Updates and CommentaryThe October Fed meeting is a key economic event, with Wall Street waiting to see what Fed Chair Powell & Co. will do about interest rates.
-
The Delayed September CPI Report is Out. Here's What it Signals for the Fed.The September CPI report showed that inflation remains tame – and all but confirms another rate cut from the Fed.
-
New Opportunity Zone Rules Triple Tax Benefits for Rural Investments: Here's Your 2027 StrategyNew IRS guidance just reshaped the opportunity zone landscape for 2027. Here's what high-net-worth investors need to know about the enhanced rural benefits.
