Well, they finally did it. Walgreens Boots Alliance just killed off one of the only reasons anyone still cared about holding its stock: the dividend. After 90 straight years of quarterly payouts—longer than most of your grandparents have been alive—the company decided to pull the plug.
(Source: Giphy)
The news hit like a ton of bricks. Shares spiraled more than 15% earlier Friday before clawing back to a still-pathetic 10% drop by the closing bell. Because, yeah, apparently even Walgreens investors have a breaking point. This is the same stock that’s lost half its value since last spring. You’d think they’d be numb by now, but nope—nothing stings quite like losing your quarterly check during a time when you’re being accused of single-handedly fueling America’s opioid epidemic.
(Source: CNBC)
So, why the sudden death of the dividend? Walgreens says it’s all about shoring up the balance sheet to deal with a trifecta of dumpster fires: litigation (fat settlements), debt refinancing, and the overall struggle of being a pharmacy chain in the retail apocalypse. CFO Manmohan Mahajan tried to put a brave face on it, but the subtext couldn’t be clearer: cash flow is a nightmare, and the dividend was the sacrificial lamb. Howard Silverblatt, an analyst over at S&P Dow Jones Indices, summed it up best when he said, “A dividend suspension is sending a signal to the whole world that I have a problem, and it’s cash flow and it’s not short term.” Translation: Walgreens is swimming in trouble.
And trouble they are. Especially since, like mentioned, the DOJ is breathing down Walgreens’ neck with a lawsuit that alleges the company’s pharmacists filled millions of sketchy prescriptions, including for opioids, dating back to 2012. If the courts side with the government, Walgreens could be on the hook for up to $80,850 per “oops, we shouldn’t have filled that” prescription. Multiply that by millions, and you’re looking at a payout that makes their recent $106 million settlement look like a record breaking Publishing Clearing house bonanza.
(Source: AP)
Additionally, CEO Tim Wentworth has been rolling out a $1 billion cost-cutting plan that includes closing 1,200 stores across the U.S. over the next few years. Add in persistently low drug reimbursement rates, inflation-sensitive shoppers ditching Walgreens for Walmart, and the ongoing headache that is retail theft, and you’ve got a business model that’s more broken than Jerome Powells money printer.
Analysts, for the most part, are grudgingly supportive of the dividend suspension, with Leerink Partners’ Michael Cherny calling it “prudent and somewhat overdue.” Still, there’s no sugarcoating the near-term pain. The dividend cut is going to trigger forced selling from income-focused funds, which is just a fancy way of saying, “More people are about to yeet this stock into oblivion.”
(Source: Giphy)
Hell, even Walgreens tried (and failed) to offload itself to private equity firm Sycamore Partners. They even floated the idea to other potential buyers, but apparently, nobody wanted to catch this falling knife. The irony here is rich—Walgreens, a company built on the idea of selling you Band-Aids, can’t find anyone to slap one on its business. Meaning for investors, if you’re still in this stock, it’s time to look yourself in the mirror and ask the hard questions.
Is there a turnaround story here? Maybe. Tim Wentworth is making the right moves by cutting costs and exploring non-core business sales, but that’s a long-term play. In the short term, the company’s got a mountain of problems to climb, and the dividend suspension is just the starting gun.
(Source: Giphy)
If nothing else, the end of Walgreens’ 90-year dividend streak should serve as a wake-up call: no stock is safe, no payout is sacred, and in the world of retail pharmacy, the giants are starting to bleed out. For now though, keep your eyes on Walgreens to decipher their next move and place your bets accordingly. As always, stay safe and stay frosty, friends! Until next time…
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Stocks.News does not hold positions in companies mentioned in the article.
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