Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Walgreens Boots Alliance, Inc. (NASDAQ:WBA) is about to go ex-dividend in just 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Walgreens Boots Alliance's shares before the 18th of August in order to receive the dividend, which the company will pay on the 9th of September.
The company's next dividend payment will be US$0.48 per share, and in the last 12 months, the company paid a total of US$1.91 per share. Looking at the last 12 months of distributions, Walgreens Boots Alliance has a trailing yield of approximately 4.7% on its current stock price of $40.59. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Walgreens Boots Alliance paying out a modest 32% of its earnings. A useful secondary check can be to evaluate whether Walgreens Boots Alliance generated enough free cash flow to afford its dividend. It distributed 48% of its free cash flow as dividends, a comfortable payout level for most companies.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Walgreens Boots Alliance, with earnings per share up 8.9% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Walgreens Boots Alliance has increased its dividend at approximately 7.8% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Is Walgreens Boots Alliance worth buying for its dividend? Earnings per share have been growing moderately, and Walgreens Boots Alliance is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Walgreens Boots Alliance is being conservative with its dividend payouts and could still perform reasonably over the long run. Walgreens Boots Alliance looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
While it's tempting to invest in Walgreens Boots Alliance for the dividends alone, you should always be mindful of the risks involved. For instance, we've identified 2 warning signs for Walgreens Boots Alliance (1 doesn't sit too well with us) you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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