Is Walgreens Boots Alliance a Millionaire Maker?

The dividend here is important as it will account for a significant portion of the stock’s hypothetical investment returns. Companies determine the amount of dividends, But the stock market determines the dividend yield. Remember that a stock’s dividend yield is a mathematical relationship between the dividend and the share price. Very high returns usually indicate trouble in the underlying business. If the market were confident about the dividend, the stock would likely trade at a higher price (and lower yield).

Walgreens’ struggles are well documented, so it’s fair to question the profits. The current dividend of $1.00 per share is 70% of the company’s targeted earnings for 2025. Additionally, analysts asked management about the dividend in the company’s Q4 earnings release in October, and they did not commit to maintaining the current payout.

If the company continues to do well, Walgreens could be an interesting, deep-value stock idea. What about a millionaire-making stock? Walgreens doesn’t seem to have much of an advantage in this regard.

It could be argued that the brick-and-mortar business model that Walgreens depends on is outdated and competitors are shipping products directly to consumers. Your neighborhood pharmacy probably won’t disappear completely anytime soon, but there’s a reason Walgreens closes unprofitable stores. It looks ripe for a dividend cut, especially as Walgreens tries to repair its finances after rating agencies downgraded its credit rating to speculative (junk) status over the summer. A dividend cut could leave investors with slow growth and disappointing total returns.

As if that wasn’t enough, reports have emerged that Walgreens is considering selling itself to a private equity firm that would take the company private. A sale would likely require a premium based on Walgreens’ current valuation. But given the company’s difficulties, investors probably shouldn’t foresee anything significant that would bring big returns to shareholders.

When all is said and done, this well-known name is probably better left on the trash heap rather than in your portfolio.

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Justin Pope It has no position in any of the stocks mentioned. The Motley Fool recommends CVS Health. The Motley Fool has a feature disclosure policy.

Is Walgreens Boots Alliance a Millionaire Maker? originally published by The Motley Fool