Walgreens Boots Alliance (WBA) stock tumbled Thursday after the pharmacy chain slashed its dividend by almost half. The move puts the company at risk of being removed from the S&P 500 Dividend Aristocrats, an index of S&P 500 companies that have raised their dividends for at least 25 consecutive years.
At its old dividend level, Walgreens was one of the stocks with the highest dividend yields in the S&P 500. But that's about to change.
The company announced a quarterly dividend of 25 cents a share on Thursday, down from the prior quarter's payout of 48 cents a share. The dividend is payable on March 12 to stockholders of record as of February 20, Walgreens said in a news release.
Sign up for Kiplinger’s Free E-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.
"This action reinforces our goal of increasing cash flow, while freeing up capital to invest in sustainable growth initiatives in our pharmacy and healthcare businesses, which we believe will ultimately improve shareholder value," Walgreen CEO Tim Wentworth said in a statement.
At 48 cents per share per quarter, the forward yield on WBA stock comes to more than 7.5%. However, at the new rate of 25 cents per share per quarter, the forward yield on WBA stock falls to about 4.1%. That's still generous, but well below WBA's own three-year average dividend yield of 5.1%.
Analysts, who already give WBA one of the lowest rankings of all 30 Dow Jones stocks, applauded the decision to take cash earmarked for shareholders and invest it back into the business.
CFRA Research analyst Arun Sundaram, for one, reiterated his Hold recommendation on WBA, noting the company is "on pace toward $1 billion of cost savings this fiscal year, in addition to about $600 million of lower capital expenditures and $500 million in working capital benefits."
Industry analysts have assigned WBA stock a consensus recommendation of Hold for more than five years, according to data from S&P Global Market Intelligence. Of the 18 analysts covering WBA today, two rate it at Strong Buy, one says Buy, 12 have it at Hold, two say Sell and one ranks it at Strong Sell.
With an average target price of $26.67, Wall Street gives WBA stock implied price upside of about 12% in the next 12 months or so. Add in the dividend yield, and WBA's implied total return comes to about 16% in the next year or so.
Walgreens earnings beat estimates
Walgreens also on Thursday posted better-than-expected fiscal first-quarter earnings. On an adjusted basis, which is what industry analysts care about, Walgreens earned 66 cents a share, easily topping Wall Street's average forecast of 62 cents a share. Sales of $36.7 billion also beat analysts' estimate.
"WBA delivered fiscal first quarter results in line with overall expectations, reflecting disciplined execution in a challenging consumer backdrop," said CEO Wentworth in Walgreens' earnings release. "We are evaluating all strategic options to drive sustainable long-term shareholder value, focusing on swift actions to right-size costs and increase cash flow, with a balanced approach to capital allocation priorities."
WBA stock is a long-time market laggard. Over the past 20 years, shares generated a total return (price change plus dividends) of less than 1%. That lags the S&P 500's total return over the same period by about 10 percentage points.
And the performance only gets worse from there. WBA stock delivered negative total returns over the past one-, three-, five- and 10-year periods. As wonderful as Walgreens' annual dividend increases have been, they have been more than offset by relentless share-price depreciation.
Walgreens Boots Alliance stock is one of the top-weighted names in the Dividend Aristocrats and – by extension – the ProShares S&P 500 Dividend Aristocrats ETF (NOBL) that tracks the Aristocrats. Needless to say, WBA stock hasn't been doing investors in NOBL any favors.
WBA may lose its status as a Dividend Aristocrat, but if these new capital plans can kick start its moribund stock price, long-suffering equity income investors will almost certainly come to forgive it.
Related Content
-
Eight Key Steps to Take When Investing in the Stock MarketThe stock market can be a confusing place for beginners, but it doesn't have to be.
-
Confused by Annuities? Making Sense of the Different TypesMany investors aren't sure if annuities are a good option for meeting financial goals. Let's look at the different categories, along with their pros and cons.
-
Stock Market Today: Stocks End Higher Ahead of May PCE DataMicron Technology, Walgreens Boots Alliance and Levi's were three of Thursday's biggest movers.
-
Walgreens Stock Hits 27-Year Low After Massive Earnings MissWalgreens Boots Alliance stock is tanking Thursday the pharmacy retailer came up short of earnings expectations and slashed its full-year outlook. Here's what you need to know.
-
Stock Market Today: Stocks Slip With Inflation Data in FocusAmazon closed lower on its first day as a Dow Jones stock.
-
Stock Market Today: Stocks End Mixed After Fed MinutesAnother down day for Nvidia dragged on the Nasdaq.
-
Amazon to Replace Walgreens in the Dow: Why This MattersAmazon joins the elite club of Dow Jones stocks, while troubled Walgreens gets the boot.
-
Stock Market Today: Higher Close for Stocks, Palantir Soars on AI OptimismWhile the main indexes made modest moves Tuesday, Palantir Technologies soared 30% after earnings.
-
S&P 500 Dividend Aristocrats: Who's Out, Who's Individends The dependable dividend growers of the S&P 500 Dividend Aristocrats dumped a Dow Jones stock and added an industrial supplier.
-
Stock Market Today: Nasdaq Logs Longest Daily Losing Streak Since 2022The tech-heavy index closed lower for a fifth straight session as Mobileye and Walgreens Boots Alliance spiraled.
