Stock Analysis

Walgreens Boots Alliance (NASDAQ:WBA) Is Paying Out A Larger Dividend Than Last Year

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NasdaqGS:WBA
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Walgreens Boots Alliance, Inc. (NASDAQ:WBA) has announced that it will be increasing its dividend on the 10th of December to US$0.48. This will take the dividend yield to an attractive 3.9%, providing a nice boost to shareholder returns.

Check out our latest analysis for Walgreens Boots Alliance

Walgreens Boots Alliance's Earnings Easily Cover the Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last payment made up 82% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share is forecast to rise by 70.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 51%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

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NasdaqGS:WBA Historic Dividend October 25th 2021

Walgreens Boots Alliance Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from US$0.70 in 2011 to the most recent annual payment of US$1.91. This means that it has been growing its distributions at 11% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Dividend Growth Is Doubtful

Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. Over the past five years, it looks as though Walgreens Boots Alliance's EPS has declined at around 9.8% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Walgreens Boots Alliance will make a great income stock. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We don't think Walgreens Boots Alliance is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Without at least some growth in earnings per share over time, the dividend will eventually come under pressure either from competition or inflation. Businesses can change though, and we think it would make sense to see what analysts are forecasting for the company. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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 55.7% below our estimate of its fair value

  • Earnings are forecast to grow 50.22% per year

Risks

  • Significant insider selling over the past 3 months

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