Is Walgreen’s Dividend Safe?

It wasn’t too long ago when Walgreens Boots Alliance (NASDAQ:WBA) was the LeBron James of dividend stocks, effortlessly slam-dunking high yields as if it were in a league of its own.

With a jaw-dropping dividend yield and a payout streak that lasted nearly half a century, WBA ranked highly among dividend champions.

But the days of toast the champagne to the passive income might be on the cusp of ending. That impressive yield isn’t a result of Walgreens suddenly feeling generous. No these days it’s more a function of the stock price slaloming downhill from highs of $85 per share in 2018 to where it sits today clinging on to a price just north of $20 per share.

Ruffled Feathers and Raised Eyebrows

Investors are now scratching their heads and biting their nails, wondering where this high-flying dividend bird is going to land.

All seemed well at the end of Q2 2022 when Walgreens decided to toss a breadcrumb of a dividend increase, marking almost half a century of a winning streak – three years shy to be precise. 

Fast forward a year and the company ghosted shareholders by offering no dividend increase whatsoever. Zero. Zip. Nada.

Even if management coughs up an increase later this year, the break in tradition is like a skipped heartbeat—concerning, to say the least. 

High-Wire Act on Skinny Margins

If dividends are the soul of an investment, then profit margins are its heartbeat. Now compare this with some healthcare peers who strut margins 5x larger, and you can see why Walgreens is looking less attractive by the financial minute.

Add to that stagnating revenues and you can see why investors are starting to sit up with concerns that the future may not be nearly as bright as the past. Certainly, it’s a positive that management is investing in the future via primary care clinics but all of that expansion comes at a cost on the profit and loss statement.

If Walgreens is teetering on the brink of losses, will the dividend be the first casualty? It’s starting to look like that scenario may very well play out.

If Walgreens chooses the path of dividend cuts, it might as well release all its skeletons from the closet. However, on the sunny side of the street, reducing dividends could free up valuable cash for growth ventures.

Still, let’s not tiptoe around the issue: this move could turn their dividend from a safety net into a trapeze act without a net.

High-Stakes Game vs Time to Fold?

So, where does this leave shareholders? Is Walgreens the risky maverick no one should trust, or a diamond in the rough inviting a second look? Stagnating revenues, a broken dividend streak, and slimming margins could be the triumvirate that torpedos the dividend for passive income investors.

If you’re the type of investor who relishes a high-risk, high-reward poker game, maybe Walgreens is your wild card. But if you want your portfolio to be as predictable as a metronome, you may be better suited scanning the horizon for greener pastures.

At the Crosshairs of Fate

To cap it off, Walgreens is at a fork in the road—a point of reckoning. The company could either re-emerge as a wiser, stronger player or sink deeper into a labyrinth of financial haze. Just remember, in the world of investing, uncertainty is the twin sibling of risk. And right now, Walgreens has a family reunion’s worth of it.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.