Stock Analysis

Only Four Days Left To Cash In On Walgreens Boots Alliance's (NASDAQ:WBA) Dividend

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NasdaqGS:WBA
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Walgreens Boots Alliance, Inc. (NASDAQ:WBA) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Walgreens Boots Alliance's shares on or after the 14th of November will not receive the dividend, which will be paid on the 12th of December.

The company's next dividend payment will be US$0.48 per share, and in the last 12 months, the company paid a total of US$1.92 per share. Based on the last year's worth of payments, Walgreens Boots Alliance has a trailing yield of 5.0% on the current stock price of $38.29. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Walgreens Boots Alliance can afford its dividend, and if the dividend could grow.

Check out the opportunities and risks within the US Consumer Retailing industry.

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Walgreens Boots Alliance's payout ratio is modest, at just 38% of profit. A useful secondary check can be to evaluate whether Walgreens Boots Alliance generated enough free cash flow to afford its dividend. It paid out 77% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
NasdaqGS:WBA Historic Dividend November 9th 2022

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Walgreens Boots Alliance, with earnings per share up 5.7% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Walgreens Boots Alliance has lifted its dividend by approximately 7.9% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Has Walgreens Boots Alliance got what it takes to maintain its dividend payments? Earnings per share growth has been modest, and it's interesting that Walgreens Boots Alliance is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. Overall, it's hard to get excited about Walgreens Boots Alliance from a dividend perspective.

So while Walgreens Boots Alliance looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 2 warning signs for Walgreens Boots Alliance (of which 1 is a bit unpleasant!) you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

What are the risks and opportunities for Walgreens Boots Alliance?

Walgreens Boots Alliance, Inc. operates as an integrated healthcare, pharmacy, and retailer in the United States (U.S.), the United Kingdom, Germany, and internationally.

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Rewards

  • Trading at 70.2% below our estimate of its fair value

  • Earnings grew by 117.5% over the past year

Risks

  • Earnings are forecast to decline by an average of 3.6% per year for the next 3 years

  • Significant insider selling over the past 3 months

  • Large one-off items impacting financial results

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Walgreens Boots Alliance

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About NasdaqGS:WBA

Walgreens Boots Alliance

Walgreens Boots Alliance, Inc. operates as an integrated healthcare, pharmacy, and retailer in the United States (U.S.), the United Kingdom, Germany, and internationally.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation5
Future Growth0
Past Performance3
Financial Health4
Dividends6

Read more about these checks in the individual report sections or in our analysis model.

6 star dividend payer and undervalued.