Last update on 2024-06-25

Walgreens Boots Alliance (WBA) - Dividend Analysis (Final Score: 7/8)

Evaluates Walgreens Boots Alliance dividend performance using an 8-criteria scoring system. Current score: 7/8. Comprehensive analysis with historical data.

Short Analysis - Dividend Score: 7

We're running Walgreens Boots Alliance (WBA) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Walgreens Boots Alliance (WBA) received a 7 out of 8 score in the 8-criteria analysis evaluating its dividend policy. Key highlights include a significantly high dividend yield of 7.3535%, much higher than the industry average of 3.82%. The company has maintained an average annual dividend growth rate of 12.63%, exceeding the 5% threshold. Their average payout ratio is 44.87%, below the 65% mark, showcasing sustainability. Although dividends have been generally stable over the past 20 years, the dividend coverage by earnings and cash flow has shown concerning trends, particularly in 2020 and 2023. Despite these issues, WBA has paid dividends for over 25 years and has shown a commitment to stock repurchases over the years.

Insights for Value Investors Seeking Stable Income

Given Walgreens Boots Alliance's strong historical performance in maintaining and increasing dividends, along with a history of consistent payouts and stock buybacks, the company appears favorable for income-focused investors. However, the recent issues with dividend coverage by earnings and cash flow, particularly the significant negative coverage in 2023, require caution. Potential investors should closely monitor these financial metrics to ensure the sustainability of dividend payments before making an investment decision.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield represents the ratio of a company's annual dividend compared to its share price and shows what percentage return shareholders may earn from dividends alone. It is an essential measure for income-focused investors.

With a current dividend yield of 7.3535%, Walgreens Boots Alliance (WBA) significantly surpasses the industry average dividend yield of 3.82%. Over the years, WBA's dividend yield has seen a substantial increase from 0.4453% in 2003 to the current 7.3535%, indicating strong growth in dividend income for shareholders. However, the increase in dividend yield is partly attributed to the decline in stock price, mainly falling from $85.16 in 2015 to $26.11 in 2023. While a high dividend yield looks attractive for income investors, its sustainability may be a concern if the decreasing stock price reflects underlying business challenges.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate considers the annualized percentage rate of growth of a company's dividend over a specified period of time. A growth rate above 5% indicates that the company is likely generating sufficient earnings and profits to pay a rising dividend, which is a positive sign for income-focused investors.

The dividend ratio data from 2003 to 2023 demonstrates significant volatility year-to-year. Despite some negative growth rates in years like 2003, 2015, and 2021, Walgreens Boots Alliance has managed to maintain an average dividend ratio of 12.6261%. This average surpasses the 5% growth threshold significantly. Thus, although the trend fluctuates, it underscores a general positive trajectory for dividend growth. This is generally a good trend for WBA, showcasing its ability to sustain and potentially increase dividends, albeit with some volatility.

Average annual Payout Ratio lower than 65% in the last 20 years?

A dividend payout ratio under 65% is considered prudent as it indicates the company is retaining sufficient earnings to fund growth, operations, and withstand potential financial difficulties.

The average payout ratio for Walgreens Boots Alliance (WBA) over the past 20 years is approximately 44.87%, which is comfortably below the 65% threshold. This indicates a conservative and sustainable dividend payout policy. Outlier years, such as the exceptionally high payout ratio in 2020 (357.18%) reflect anomalies like extraordinary financial impacts, potentially the COVID-19 pandemic. The negative payout ratio in 2023 (-53.81%) also indicates unique financial deviations which might include accounting adjustments or significant losses. Overall, the trending average suggests a commendable policy which should be perceived positively by dividend-focused investors.

Dividends Well Covered by Earnings?

When evaluating the sustainability of a company's dividend payout, it's crucial to examine if the dividends are well covered by the earnings. This involves comparing the Dividend per Share (DPS) to the Earnings per Share (EPS). A higher coverage ratio indicates a safer dividend, reducing risk for investors.

Reviewing Walgreens Boots Alliance's EPS versus DPS from 2003 to 2023 reveals fluctuating dividend coverage. For most of the early period, the dividend coverage ratio between 0.14 and 0.41 suggests moderate safety. During critical years such as 2012-2013, a notable increase to over 0.8 reflects healthier coverage. However, 2020 with 3.57 is an outlier due to unstable earnings in the COVID-19 period. More concerning is the 2023 coverage at -0.54, driven by a negative EPS of -3.57, implying unsustainable dividends at current earnings. Investors should be cautious as current earnings inadequately cover dividends, signaling potential future dividend cuts.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow is a criterion indicating that a company's dividend payouts are sufficiently backed by its free cash flow, ensuring sustainability without straining finances.

The free cash flow of Walgreens Boots Alliance (WBA) over the years has shown considerable fluctuation, with a high of approximately $6.9 billion in 2018 and a steep drop to $141 million in 2023. Similarly, the dividend payout amount has generally increased but remained more stable, hitting around $1.66 billion in recent years. The critical observation is the trend in dividends covered by cash flow ratios. Values comfortably below 1 indicate strong coverage. Up until 2019, WBA managed this well with ratios consistently below 1, albeit with some tightening bandwidth over the years. However, 2023's ratio skyrocketing to 11.77 signals a drastic inadequacy in free cash flow to cover dividends. This sharp decline and current predicament of sharply reduced free cash flow against a stable dividend payout points to unsustainability and potential future financial strain for WBA, decidedly marking a negative trend in this criterion.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends are key indicators of financial health and reliability for income-seeking investors, ensuring predictable cash flow.

Over the past 20 years, Walgreens Boots Alliance (WBA) has generally shown a positive trend in its dividend per share, growing from $0.162 in 2003 to $1.92 in 2023. However, in 2015, the dividend per share dropped significantly from $1.621 to $1.396, more than the critical threshold of 20%. This one-time drop is a red flag for dividend stability and may concern income-seeking investors, even though the overall long-term trend is positive. Therefore, while WBA has demonstrated overall growth in dividends, the significant drop in 2015 suggests that investors should be cautious and consider the underlying reasons for this decrease.

Dividends Paid for Over 25 Years?

Dividends Paid for Over 25 Years is a criterion that looks at the consistency of a company in paying dividends for at least the past 25 years. This indicates a stable, shareholder-friendly policy and suggests financial robustness.

Walgreens Boots Alliance (WBA) has demonstrated an impressive track record of paying dividends consecutively from 1998 to 2023. Starting at a dividend per share of $0.1255 in 1998 and steadily growing to $1.92 in 2023, WBA has consistently rewarded shareholders. This long history of dividend payments indicates strong financial health and a commitment to returning value to shareholders. The trend is decidedly positive, showcasing reliable growth and solid company management. This performance meets the criterion excellently.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases involve a company consistently buying back its shares, which can indicate strong cash flow and management's confidence in the long-term profitability of the company. This can potentially lead to share price appreciation and increased shareholder value.

Walgreens Boots Alliance (WBA) has exhibited a pattern of share repurchases over the past 20 years. Here's the breakdown: Between 2005 and 2012, the company consistently reduced its share count, demonstrating a commitment to returning capital to shareholders through buybacks. This trend continued in the later years, particularly from 2017 to 2023, except for some slight increases in shares outstanding in certain years like 2014 and 2016. For instance, the number of shares was significantly reduced from 1.03 billion in 2003 to approximately 864 million in 2023, indicating a long-term strategy of buybacks. The average repurchase rate of -0.7963 over the 20 years underscores WBA's emphasis on buying back shares. This trend is generally positive, reflecting consistent efforts to enhance shareholder value, and suggests that management is confident in the company’s future cash flows and profitability. However, the few years of increased share count may indicate either issuance for acquisitions, compensations, or equity-linked transactions.