On Jan. 30, pharmacy retail giant Walgreens Boots Alliance (NASDAQ:WBA) announced that it would be suspending its dividend as it tries to turn around its business. It’s horrible news for investors who have been relying on the high payout.
It wasn’t all that long ago that Walgreens had an impressive dividend growth streak that spanned decades, and now that streak is over and so is the dividend. The company says that the move is to “refine its capital allocation policy consistent with the company’s broader long-term turnaround efforts.”
But for investors who have been following the stock, it shouldn’t come as a huge surprise. Walgreens’ dividend wasn’t sustainable. The company is burning through cash, and it doesn’t have a lot of it to keep the cash burn going, and it’s struggling with profitability. The business has been in a dire situation for a while now and new CEO Tim Wentworth took over in October 2023 to help turn things around. One of the big moves he made early on was to slash the dividend in January 2024 and now a year later, the company has gone on to suspend it entirely.
This highlights just how challenging of a turnaround it is for Walgreens, and why investing in a company under such circumstances bears considerable risks. With the dividend suspended, investors have dumped this already struggling stock as many undoubtedly owned it for the payout.
Walgreens may look cheap amid the selloff but there are huge risks ahead for the business and investors should resist the temptation to buy. It’s an important example of why relying on dividend and not paying close attention to a company’s financial state can result in perilous results.
