Shareholders were spooked about a new threat to the company’s core business; a fresh dividend declaration didn’t help.
It can be scary when a major blue chip company comes for your business. This was a significant factor behind the nosedive in Walgreens Boots Alliance (WBA -0.11%) stock over the past few trading sessions. Week to date as of Friday before market open the company’s share price had tumbled by more than 13%, according to data compiled by S&P Global Market Intelligence. Even Walgreens’ maintenance of its high-yield dividend couldn’t halt the slide.
Same-day headache
What a difference a few days can make. Walgreens stock had been riding (relatively) high at the end of last week, as investors digested an estimates-beating fiscal fourth-quarter earnings report.
The situation changed dramatically this past Tuesday, when retail industry giant Walmart announced that it was rolling out a same-day pharmacy delivery service. Although initially limited to only six U.S. states in what appears to be an unofficial pilot program, Walmart pledged to expand it to 49 by the end of this coming January.
This, obviously, directly affects Walgreens, as the company still makes significant coin from (and is best known for) sales of medicine. It gives it yet another headache in the pharmacy delivery space, as Walmart’s fellow retail titan Amazon has also encroached on the business, leveraging its quick order-to-front-door times.
Under pressure
With competitive pressures increasing, Walgreens Boots Alliance is — sensibly — trying to keep shareholders sweet by offering a high-yield dividend. It maintained that payout this week, declaring a new $0.25-per-share quarterly distribution on Thursday. This matches the previous three payments, meaning that said yield will remain above 10% across the foreseeable future.
Yet I need to caution that a high-yield dividend is often the result of a stock’s unpopularity, rather than gushing cash flow. I feel Walgreens is facing numerous challenges and doesn’t yet have a plausible strategy to deal with them. As such I would probably avoid the stock, despite that awfully tempting high-yield dividend.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Walmart. The Motley Fool has a disclosure policy.
