We recently compiled a list of the 10 Best Dividend-Paying Stocks Under $50. In this article, we are going to take a look at where Walgreens Boots Alliance, Inc. (NASDAQ:WBA) stands against the other dividend-paying stocks under $50.
The bullish market trend that had been ongoing since October 2022 faced a disruption in early August. Investor sentiment shifted as concerns about the U.S. economy’s strength grew. This change was triggered by a jobs report, which revealed modest job growth in July and a rise in the national unemployment rate. These figures sparked worries about potential economic challenges and doubts about whether the Federal Reserve had acted too slowly in implementing anticipated interest rate cuts that were expected to support the economy. As a result, stock markets saw sharp declines over several consecutive trading days. The broader market fell by 3% between August 2 and August 5.
According to analysts, despite the recent downturn in the market, there is no reason for equity investors to become overly cautious. The outlook remains positive, and it is still considered a favorable time to invest. For those holding cash, this period presents an opportunity to allocate capital to longer-term assets. Positive investment trends, particularly in AI but extending beyond it, offer ample opportunities for stock growth. Additionally, rising dividends provide another attractive element for investors to consider. Although dividend stocks have been underperforming relative to the broader market recently, they remain a popular choice due to their long-term returns. The Dividend Aristocrats Index has risen slightly over 6% this year, but the growth in dividends among US companies is promising. Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, forecasts a 6% increase in dividend payments for 2024, up from a 5.1% rise in 2023.
Also read: 10 Highest Paying Monthly Dividend Stocks
Dividend growth has been a trend this year, compared to the previous year. In the first and second quarters of 2024, dividends paid by US companies have grown significantly. According to Silverblatt, the significant takeaway from both quarters was the performance of large-cap companies. In April, Alphabet began paying a $9.3 billion dividend, joining other major dividend initiations in the first quarter, such as Bookings with $1.2 billion, Meta Platforms with $4.4 billion, and Salesforce with $1.5 billion. These initiatives contributed to 53% of the S&P 500’s year-to-date indicated dividend increase. Although gains without these new initiations were already setting a record for the broader market dividend payments in 2024, the additional forward cash commitments to dividends are expected to significantly boost payouts and prompt both investors and non-paying boards to reconsider their strategies.
Dividend stocks have historically made a substantial contribution to overall market returns. According to a Hartford Funds report, from 1940 to 2023, dividend income accounted for an average of 34% of the total market return. Analysts have long explored various dividend strategies to maximize investor returns. While high dividend yields have attracted considerable attention, dividend growth has proven to be a more reliable approach. However, recent research indicates that combining both yield and growth strategies can offer the greatest benefits. The High Dividend Growth Index, which tracks companies with the highest projected dividend yield growth in the broader market and a history of maintaining or increasing dividends for at least five years, has surged nearly 20% over the past year. This performance surpasses that of the Dividend Aristocrats Index, which focuses solely on dividend growth without considering yields.
Investors should thoroughly evaluate what suits their portfolio, as strategies that are effective at one time may not perform well in another. It’s crucial to consider the underlying fundamentals of a company when making investment decisions. In this article, we will take a look at some of the best dividend stocks under $50 according to analysts.
Our Methodology:
For this list, we screened for dividend stocks with share prices below $50, as of the close of August 16. From this group, we picked stocks with a projected upside potential of over 10% based on analyst price targets. We further narrowed down the list by including stocks that have dividend yields of at least 2%, as of August 16. The stocks are ranked in ascending order of their upside potential, as of August 16.
We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 912 funds as of Q2 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A pharmacist discussing the health benefits of a prescription medication with a customer.
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.
Overall WBA ranks 2nd on our list of the best dividend-paying stocks under $50. While we acknowledge the potential of WBA as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than WBA but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.
