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
-
The Mulligan Rule of Retirement — Seven Mistakes You Can FixUse the Mulligan Rule to undo these seven costly retirement errors. While you can’t go back in time, some retirement choices allow for a “correction shot.”
-
My First $1 Million: Retired Educator/Administrator, 67Ever wonder how someone who's made a million dollars or more did it? Kiplinger's My First $1 Million series uncovers the answers.
-
From Pets to Paintings: The Little Things That Can Cause Big Estate TroubleSentimental items might have little monetary value, but their disposition can cause hurt feelings. Talking about who wants what and labeling items can help.
-
The Clock Is Ticking: Take Advantage of These Retirement Tax Benefits While They LastRecent tax changes, including an extra $6,000 deduction for those 65 and older, present a golden opportunity for retirees to reduce their tax bills.
-
I'm a Financial Adviser: This Is Why Unmarried Same-Sex Couples Need an Estate PlanWhen illness or death occurs within an unmarried same-sex partnership, family members can step in and push the surviving partner out. An estate plan is vital.
-
Stocks Bounce But End With Big Weekly Losses: Stock Market TodayThe stock market rout continued on Friday, but a late-day burst of buying power brought the main indexes off their session lows.
-
Costco Gold Bars Keep Selling Out. Are They a Smart Investment?How Costco's bullion program works, how to get the best deal and whether it makes sense for investors.
-
Use This Stock Market Recipe for a Well-Diversified PortfolioFor years, large U.S. stocks were all you needed for a diversified portfolio. A broader mix is better now.
-
A Financial Planner's Guide to a Stress-Free Adventure AbroadStart by looking at flight/accommodation costs, have a flexible schedule, seek out credit card rewards, prep for health issues and plan to cook your own food.
-
I'm a Financial Planner: This Is How Smart Women Can Plan for Financial Freedom Despite Life's CurveballsProactive planning and professional guidance can help to build your confidence and give you clarity when you're navigating major life transitions.
