For first time in 92 years, Walgreens suspends quarterly dividend amid financial struggles
Walgreens Boots Alliance announced Thursday that it is suspending its practice of paying cash dividends to stockholders — the first time it won’t pay a quarterly dividend in 92 years.
The change comes amid struggles for the Deerfield-based retail pharmacy giant. Walgreens announced plans in October to shutter 1,200 stores over the next three years, including in Chicago. Walgreens has been cutting costs for years, including through layoffs in Illinois and other locations.
Walgreens said in a news release Thursday that it was suspending quarterly dividends “as management continues to evaluate and refine its capital allocation policy consistent with the company’s broader long-term turnaround efforts.”
Before now, Walgreens Boots Alliance and its predecessor company, Walgreen Co., had paid quarterly dividends to stockholders for 368 consecutive quarters, or 92 years.
The change is aimed at improving Walgreens’ finances by reducing debt over time and improving cash flow, Walgreens said in the release. “The company’s cash needs over the next several years, including with respect to litigation and debt refinancing, were important considerations as part of the decision to suspend the dividend,” Walgreens said in the release.
Walgreens had a net loss of $265 million in the first quarter of this year, compared with a net loss of $67 million during the same quarter the previous year.
Under previous CEOs, Walgreens had aimed to become more of a health care destination, including by investing billions of dollars into primary care provider VillageMD with plans to put Village Medical clinics in 1,000 of its stores by 2027. Walgreens, however, has reversed course on that plan, saying in an August filing with the Securities and Exchange Commission that it was considering selling all or part of its VillageMD business. Current CEO Tim Wentworth has said that Walgreens wants to refocus on being a “retail-pharmacy-led company.”
Walgreens has also struggled for years with issues related to medication reimbursement and changing consumer habits, among other challenges.
Though the company had a net loss in its most recent quarter, some of the operating loss was related to the costs of store closures, and sales increased 7.5% in the quarter compared with the same quarter in the previous year.
“While our turnaround will take time, our early progress reinforces our belief in a sustainable, retail pharmacy-led operating model,” Wentworth said in a news release about earnings earlier this month.
It’s no surprise that Walgreens chose to suspend its dividend as a way to free up cash, pay down debt and focus on fixing its operations, wrote John Boylan, a senior equity analyst for Edward Jones, in a note to investors Thursday.
“We view this as a prudent step to improve its cash flow and financial structure,” Jones wrote in the note. “Overall, we believe management’s turnaround strategy appears sound, but it will take time to unfold and is not without risk in a highly competitive drugstore industry.”
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