Can I Buy Walgreens Boots Alliance Stock Now?
Walgreens Boots Alliance (W.B.A. -0.83%) is a famous domestic brand and pharmacy retailer is a trusted brand for millions of customers. But the business has struggled to achieve meaningful growth. The shift to health services and opening primary care clinics may take years to pay off.
With a greater focus on growth, the company took the significant step of cutting its dividend earlier this year to free up cash. This will help with our long-term growth strategy. The stock is now trading at levels not seen in 15 years and perhaps on a more positive trajectory. Is Walgreens (finally) a good investment to add to your portfolio?
Your company may look a lot different in a few years
Although Walgreens cut its dividend this year, cash remains a big problem. The company needed a lot of capital to fund its healthcare expansion and has now turned to asset sales and investments. Earlier this month, Walgreens announced that it had sold its stock. Senkora (formerly AmerisourceBergen) had proceeds of $992 million. With this sale, the stake in the healthcare business will be reduced from approximately 15% to 13%.
The company is also reportedly considering selling its specialty pharmacy business, Shields Health Solutions. The sale could be valued at around $4 billion.
A bigger move could include the spinoff of Boots UK, which could be worth more than $8 billion. Walgreens previously considered selling its UK-based pharmacies but decided against it in the summer of 2022. But now that the company’s financials aren’t looking very strong, all options appear to be on the table for Walgreens’ new CEO Tim Wentworth. , acquired back in October.
As of November 30, 2023, Walgreens had reported cash and cash equivalents of just $784 million. This is especially troubling considering the company lost $281 million during routine operating activities during the last quarter. It also spent an additional $415 million on dividend payments.
Walgreens has a significant need to strengthen its cash position, and by selling assets and cutting its dividend, management is showing that it is taking the situation seriously.
Dividends are low, but that doesn’t mean they’re safe
Walgreens made a big move earlier this year when it announced it would reduce its quarterly dividend to $0.25 from $0.48 last year. At $1 per share for one year, the return is still high at 4.5%. S&P 500 Average 1.4%, higher than competitors CVS HealthThis yields 3.5%.
Walgreens’ new dividend will be less disruptive to the company’s finances. However, this doesn’t necessarily mean it’s safe. For example, in its most recent quarter, Walgreens reported a loss. And it burned through cash, too. If this trend continues, Walgreens’ current payouts may not be sustainable.
Companies need to generate positive cash flow so they can maintain dividends without having to raise money to pay them. Over the past 12 months, Walgreens has lost more than $1 billion in operating losses.
Investors may assume that because the dividend was cut, payments will be safe for the foreseeable future, but this is not necessarily the case. Walgreens’ problems go beyond its dividend.
Should you invest in Walgreens stock?
Walgreens is in the midst of a transition, which could be a risky time to invest in the business. There is uncertainty about where the business will go and what will and will not work for the company. Walgreens’ new CEO is showing a willingness to make difficult decisions for the company’s long-term future, including cutting its dividend and considering asset sales, and that’s a good thing.
However, at this stage, it may be too early in the transition phase for Walgreens to be a good stock to buy. There are safer dividend stocks to choose from. Until Walgreens can show investors that its financials are in much better shape, it may be better to sit on the sidelines than take on this struggling stock.
