Is This a Sign Walgreens Boots Alliance's Dividend Is in Danger?

Walgreens Boots Alliance (NASDAQ: WBA) offers an incredibly high dividend yield of 7.6%. In comparison, the S&P 500 averages a yield of only 1.5%. Walgreens' high yield isn't because the company has been aggressively raising its payouts. Instead, it's because the share price has been crashing; it's down 66% over the past five years. The stock is now trading at levels it hasn't been at in over a decade.

Investors appear to be worried about the future of the business and the safety of the dividend. And there's one thing that didn't happen recently that could further stoke concern.

Walgreens didn't raise its dividend in July

Walgreens has been lifting its dividend payments for decades. On July 13, 2022, the company announced a 0.5% boost to its dividend. That lengthened its streak to 47 straight years of increases. This past July, however, the company didn't extend that streak to 48 years.

It's still possible for Walgreens to announce a rate hike, but for companies with consistent dividend growth streaks, they usually make the announcements around the same time. July is typically when Walgreens declares dividend increases. It's possible that it might still raise its dividend later in the year, which would technically keep its streak going, but it's definitely noteworthy that it didn't follow its regular pattern.

Another thing that I found interesting was that when Walgreens issued its press release announcing a dividend on July 12, there was no mention of its streak. A year ago, the company noted that it had "raised the dividend for 47 consecutive years." That statement was also on its dividend announcement in April -- the dividend declaration immediately preceding the most recent one.

Companies with long dividend growth streaks often like to boast about them, and Walgreens' omission on its recent dividend declaration may be foreshadowing that the retailer has already decided not to raise it.

The dividend isn't looking terribly safe

The problem with Walgreens is that the business doesn't generate big margins. Its profit margin has averaged less than 2% over the past five years.

WBA Profit Margin (Quarterly) Chart

WBA Profit Margin (Quarterly) data by YCharts

The company is no longer benefiting from a rise in traffic due to COVID-19 vaccinations, and it's also investing heavily into launching primary care clinics, which may put even more pressure on its margins. Balancing growth and dividends is no easy task. And in Walgreens' case, the payout could very well be at risk. Now with the company's CEO stepping down, it paves the way for new leadership to make significant changes to this struggling business.

If Walgreens opts not to increase its dividend, it may also decide to cut it. Then, at least, all the bad news comes out at once. And the company can potentially put a positive spin on things, claiming a reduced dividend may help free up resources to help fund its long-term growth prospects. Either way, this is not a dividend that investors should feel comfortable relying on now.

Is Walgreens too risky of a stock to own?

Walgreens' dividend is questionable right now, and without a high payout, there may not be a great reason to own the stock. A lot has to go right for Walgreens in the near term, and with some troubling financials and now a change in leadership as well, its future is as uncertain as ever. Unless you're a contrarian investor who is willing to take on a lot of risk, you'll likely be better off going with other dividend stocks.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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