Walgreens (WBA 2.11%) is one of America's most recognizable drugstore brands. Up until this year, it has been a very dependable dividend-paying stock that increased its payout for investors annually for nearly 50 years, which would have distinguished it as a Dividend King. It is a primarily brick-and-mortar business that also offers delivery services for prescriptions, personal care products, and groceries through its partnership with Postmates.
Walgreens' stock price fell by over 60% in the last year due to a number of issues. The company initiated a significant cut to its dividend yield by 48% in early 2024, it ventured into healthcare businesses such as CareCentrix and VillageMD that have yet to be profitable, and it will begin closing down stores as a cost-cutting measure, to name a few.
Walgreens is now trading at below $10 per share, and it is challenging for most investors to believe in their overall viability in the future. The company has been on a downward slope in terms of share price since 2015, peaking at approximately $96 per share.
Walgreens has recently cut its dividend by 48%, from $0.48 per share in Q4 2023 to $0.25 in Q1 2024. The reason given by CEO Tim Wentworth was to prioritize capital allocation. Considering Walgreens' share price, its annual dividend yield is currently 10.4%.
Yields of approximately 10% or higher might leave investors questioning whether a company is more focused on drawing in shareholders than revenue growth and overall business expansion.
Issues keep piling up for Walgreens
Walgreens' new CEO is attempting to turn around the business and provide solid growth potential. Improving its newest segment, which is its healthcare business, and lower operating expenses are the factors the company prioritizes.
According to its fourth-quarter earnings, its retail pharmacy and healthcare sales increased 7% year-over-year. For fiscal year 2025, Walgreens anticipates continued growth in its healthcare segment.
Walgreens is attempting to decrease its operating cost by announcing in October 2024 that it would be closing approximately 1,200 stores. The company operates roughly 8,500 locations, and only about 6,000 are profitable.
Another setback for Walgreens in the fourth quarter was that it reported an operating loss of $526 million, primarily due to an impairment charge, which is a non-cash payment that lowers a company's overall net income. It was incurred by CareCentrix, a home healthcare business acquired by Walgreens in 2022. The charge was for $332 million, which greatly reduced its reported net income.
As of today, Walgreen's bid to become more of a growth-based business focused on preserving capital seems half-hearted, with its dividend yield still hovering around 10%.
Is Walgreens' dividend yield too good to be true?
A high dividend yield is great, but if a company is too focused on drawing in investors based on a large dividend, then capital allocation and producing growth opportunities for the business may become neglected, which can stunt the trajectory of the company in the long term.
At this time, its dividend yield still remains very high at over 10% annually. However, investors may be best suited to searching elsewhere for reliable income-generating companies.
So, despite all these troubles, why is Walgreen's dividend yield still so high? The drastic drop in its share price over the last few years has greatly influenced its current yield. Walgreens may also be trying to hold onto its impressive income-generating reputation among investors. Its overall growth of new and existing business segments seems to be a secondary concern to upholding its goal of providing a significant dividend payout.
On Jan. 10, 2025, Walgreens is anticipated to release its first-quarter earnings for fiscal year 2025. Investors will be giving Walgreens a close look to see if another dividend cut is applied.
