Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Walgreens Boots Alliance, Inc. (NASDAQ:WBA) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 19th of May to receive the dividend, which will be paid on the 12th of June.
Walgreens Boots Alliance's next dividend payment will be US$0.46 per share. Last year, in total, the company distributed US$1.83 to shareholders. Based on the last year's worth of payments, Walgreens Boots Alliance stock has a trailing yield of around 4.8% on the current share price of $38.35. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Walgreens Boots Alliance can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Walgreens Boots Alliance paid out a comfortable 46% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 31% of its free cash flow in the past year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Walgreens Boots Alliance's earnings per share have been growing at 14% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last ten years, Walgreens Boots Alliance has lifted its dividend by approximately 13% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Should investors buy Walgreens Boots Alliance for the upcoming dividend? Walgreens Boots Alliance has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Walgreens Boots Alliance looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Case in point: We've spotted 3 warning signs for Walgreens Boots Alliance you should be aware of.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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