Will Walgreens Have Another Big Earnings Cut In January?

Pharmacy retailer Walgreens Shoe Alliance (Nasdaq: WBA) It was once viewed as a safe dividend stock. Those days are long gone.

In the past three years alone, the stock has lost more than 80% of its value. Not only did it stop a long series of contracts from increasing its payouts, but it also reduced its profits along the way. The company is going through a turnaround and is considering selling assets and cutting costs significantly to try to support its business.

Things have gone from bad to worse for me Health care stocks While struggling to find a way out of the current chaos. The question that many investors who are still holding on may ask is that with the yield reaching more than 10%, could the dividend be cut again?

On January 4, 2024, Walgreens reported first-quarter results for the new fiscal year and announced a significant dividend cut. The 48% reduction in payouts may have been a shock to investors who were relying on this recurring income.

However, the reality was that the dividend was not sustainable, and it was only a matter of time before the company needed to do something. It said it is looking to improve its cash flow and that it will take a “balanced approach to capital allocation priorities,” which includes plans to grow its healthcare business.

The company is scheduled to announce its next quarterly results on January 9, which is when there may also be news about any change in its earnings.

Walgreens is cutting costs and improving its free cash flow; In two of the past four quarters, the company has generated positive free cash flow. For two consecutive quarters, its free money was higher than its dividends.

But overall profitability remains a major concern. Walgreens has posted an operating loss in three of the past four quarters, and with major question marks surrounding its healthcare strategy, it may be a while before the company can get back into the black. Reducing the number of its stores Being more agile will certainly help, but these moves will also take time.

What caught my attention in the press release announcing the 48% dividend cut was that management still wanted to maintain what it viewed as a “competitive yield.” Today, the yield is over 10%, and it could easily be cut in half again, and still be considered a competitor.

I think the best move for Walgreens would be to simply suspend the payout at this point and fix its operations before worrying about paying a regular dividend again. But it seems that cutting the dividend again is possible, as the company’s financial position is still not strong.

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