At the start of this year, Walgreens Boots Alliance (NASDAQ:WBA) slashed its dividend, nearly in half. The move was arguably a necessary one given the state of the company’s struggling financials, and its focus on growing its healthcare business. The problem, however, is that things don’t appear to be improving significantly.
In the company’s most recent quarterly earnings, which ended on May 31, Walgreens reported earnings of $344 million on sales of $36.4 billion – for a miniscule margin of just under 1%. And the company is lowering its guidance for the year as it notes a “challenging pharmacy industry trends and a worse-than-expected U.S. consumer environment.” For fiscal 2024, it’s expecting its adjusted EPS to be within a range of $2.80 to $2.95.
That is still well above the $1.00 per share that Walgreens pays in dividends for the full year. However, with the company investing heavily into expanding its healthcare business, it may need to free up additional cash to help fund its growth strategy.
For now, Walgreens’ dividend still looks sustainable but investors should tread extremely cautiously with the stock as its results are far from reassuring. Year to date, shares of Walgreens are down more than 50% as the stock continues to hit new lows.
Although investors may be attracted to the stock’s dividend, which yields more than 8%, it comes with a fair bit of risk. The safest option for investors right now would be to hold off and see how its healthcare strategy plays out because until its financials significantly improve, this is going to be a highly risky stock to be holding.
