Walgreens Boots Alliance (Nasdaq: WBA) boasts an infinite 9% yield. Nevertheless it’s not as a result of administration is overly beneficiant with the dividend. It’s as a result of the inventory has gotten hammered over the previous two years.
On high of that, the corporate’s free money stream has virtually disappeared.
So… can it keep such a pretty dividend?
Through the pandemic, Walgreens’ free money stream was sturdy, thanks partly to the quantity of people that acquired COVID-19 vaccines at its pharmacies.
However within the firm’s fiscal 2023, which led to August, promoting, common and administrative bills soared, which brought on its web earnings to be destructive for the 12 months.
The corporate had been worthwhile in prior years, and it’s forecast to be worthwhile once more in fiscal 2024. Attributable to this optimistic web earnings projection and a deliberate $600 million discount in capital expenditures, subsequent 12 months’s free money stream is anticipated to be considerably greater than this 12 months’s.
The Security Web mannequin does think about future expectations, nevertheless it leans rather more closely on previous efficiency. And Walgreens’ previous efficiency stinks.
Free money stream declined in every of the previous two years. And since free money stream was practically nonexistent in fiscal 2023 at simply $141 million, the $1.7 billion Walgreens paid in dividends throughout the 12 months made for an unsustainable payout ratio of greater than 1,200%.
In different phrases, Walgreens’ whole dividend payout was 12 occasions greater than the amount of money it introduced in.
This was a really unhealthy 12 months for Walgreens, and its financials took an enormous hit. Consequently, so did its dividend security ranking.
If Walgreens can ship the free money stream that it’s presently projecting for subsequent 12 months, the dividend might be okay.
However till it proves that it might probably generate that stage of money stream, the dividend can’t be thought of secure.
Dividend Security Ranking: D
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