2. Walgreens Boots Alliance, Inc. (NASDAQ:WBA)
Upside Potential as of August 16: 25.18%
Share Price as of the close of August 16: $10.92
Walgreens Boots Alliance, Inc. (NASDAQ:WBA) ranks second on our list of the best dividend stocks under $50. The Illinois-based retailer has faced significant challenges this year, beginning with a drastic reduction in its dividend, which had been consistently increased for nearly fifty years. This decision did not come overnight, as the company’s cash flow has been concerning over the past five years. Additionally, the company recently announced it is selling more shares in Cencora, raising about $1.1 billion from this transaction. This move reduces its stake in Cencora from 12% to around 10%. The funds from the sale will be used to reduce debt and support operations as the company shifts its focus towards a health services strategy.
For income investors concerned about the dividend cut, analysts suggest that there is potential for Walgreens Boots Alliance, Inc. (NASDAQ:WBA) to recover. Much of the optimism is based on the management’s cost-cutting initiatives. The new CEO has proposed closing several underperforming stores and scaling back on primary-care ventures. In addition, the company plans to introduce a US Retail Pharmacy action plan to enhance customer and patient experiences. It will also streamline its US Healthcare portfolio and better align its pharmacy and healthcare operations to strengthen its market capabilities.
This somewhat positive outlook was also highlighted by Ariel Investments in its Q1 2024 investor letter. Here is what the firm has to say about WBA:
“Alternatively, several positions weighed on performance. Shares of retail drugstore operator, Walgreens Boots Alliance, Inc. (NASDAQ:WBA), declined over the period as challenging consumer and macroeconomic conditions, ongoing operational issues and a significant cut in the dividend weighed on shares. To address these performance lows, WBA’s new CEO is rebuilding the company’s management team with leaders who have significant experience in healthcare services. Meanwhile, WBA continues to execute on its cost savings initiatives to optimize profitability and is using excess capital to prioritize the sustainability of its operations and balance sheet. Over the medium-term, we expect a re-rating in shares as the new executive team earns credibility, margins and free cash flow show signs of improvement and the company deleverages. WBA shares are currently trading at a significant discount to our estimate of private market value.”
Moreover, Walgreens Boots Alliance, Inc. (NASDAQ:WBA) also showed an encouraging cash flow picture in fiscal Q3 2024. The company’s operating cash flow for the quarter came in at $605 million and its free cash flow amounted to $334 million. In the first nine months of the year, the company returned over $1 billion to shareholders through dividends. The company’s quarterly dividend comes in at $0.25 per share for a dividend yield of 9.16%, as of August 16.
At the end of the June quarter of 2024, 35 hedge funds held stakes in Walgreens Boots Alliance, Inc. (NASDAQ:WBA), down from 41 in the previous quarter. These stakes have a total value of nearly $427 million. With over 5.6 million shares, 8 Knots Management was the company’s leading stakeholder in Q2.
