Walgreens Boots Alliance Inc. (WBA) experienced a significant downturn in its stock price, trading at $9.70 in early trading on Friday, following the announcement of its decision to suspend its quarterly dividend, which it had paid consistently for 92 years. The move is part of a strategic overhaul aimed at bolstering the company’s financial health by reducing debt and enhancing free cash flow.
This suspension comes after Walgreens already reduced its dividend payout by nearly 50% earlier in 2024, setting it at 25 cents per share. The company, which is in the early stages of a plan to close 1,200 of its roughly 8,500 U.S. locations, cited the need to manage cash flow effectively, particularly in light of upcoming litigation costs and debt refinancing, as key reasons for this drastic step.
Earlier this month, the U.S. Justice Department filed a federal lawsuit against the drugstore chain, alleging it filled millions of prescriptions without a legitimate medical purpose, including some for dangerously high amounts of opioids.
This comes after Walgreens agreed in September to pay $106 million to settle separate claims related to false payment allegations.
Meanwhile, analysts have mixed reactions to the quarterly dividend development. Michael Cherny from Leerink Partners described the suspension as “prudent and somewhat overdue,” suggesting it would support Walgreens’ turnaround efforts despite potentially leading to short-term stock sell-offs by dividend-seeking shareholders. Elizabeth Anderson of Evercore ISI sees it as a positive step towards financial recovery, estimating a savings of about $650 million for fiscal 2025 from this decision.
Bloomberg Intelligence’s Jonathan Palmer indicated that the dividend might not be reinstated until several conditions are met: the growth of the U.S. pharmacy business, divestiture of certain healthcare assets, and clarity on potential financial liabilities from government actions.
Walgreens has been grappling with several operational challenges, including declining pharmacy reimbursements and heightened competition from online retail platforms. In response, the company has been exploring various strategic options, including discussions with Sycamore Partners about going private. Additionally, Walgreens has been actively managing costs through store closures, as mentioned, and a thorough review of its investment portfolio to streamline operations and focus on more profitable segments.
This strategic pivot, although causing immediate investor concern reflected in the plummeting share price, is aimed at positioning Walgreens for long-term stability and growth. The suspension of the dividend is a clear signal of Walgreens’ commitment to financial restructuring, focusing on core business strengths, and adapting to a rapidly changing retail and healthcare landscape. However, the success of these measures will largely depend on how quickly Walgreens can navigate through its current challenges and capitalize on emerging opportunities in the healthcare sector.
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