Walgreens shares sank Friday, a day after the drugstore chain said it was suspending its dividend, breaking a streak of quarterly shareholder payouts that stretches back more than 90 years.
The drugstore chain said late Thursday that it made the decision in an effort to strengthen its balance sheet and improve free cash flow as company leaders try to turn around the struggling business.
Walgreens has been dealing with thin prescription reimbursement, rising costs, persistent theft and inflation-sensitive shoppers who are looking for bargains elsewhere. The company is in the early stages of a plan to close 1,200 of its roughly 8,500 U.S. locations.
The company said in a brief statement Thursday that its cash needs over the next several years for things like litigation and debt refinancing were big parts of the decision to suspend the dividend.
Earlier this month, the U.S. Justice Department filed a lawsuit in federal court accusing the drugstore chain of filling millions of prescriptions without a legitimate purpose, including some for dangerous amounts of opioids.
In September, the company said it would pay $106 million to settle separate litigation over false payment claims.
Walgreens started last year by cutting the quarterly dividend nearly in half. The company slashed the payout to 25 cents from 48 cents after spending about $1.7 billion on cash dividends in fiscal 2023.
Chief Financial Officer Manmohan Mahajan told analysts earlier this month that Walgreens still was evaluating “the appropriateness and size of our dividend as part of our capital allocation policy.”
The suspension was “prudent and somewhat overdue,” Leerink Partners analyst Michael Cherny said Thursday in a research note. He added that the divided had “become out of whack” in terms of its yield and the cash it required.
There were only two dividend suspensions last year in the S&P 500, including one from the chipmaker Intel. There generally are only a few each year.
A dividend suspension “is sending a signal to the whole world that I have a problem, and it’s cash flow and it’s not short term,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
But he added that markets frequently see a dividend suspension as a positive sign initially because the company recognizes it has a problem and is taking a step to correct it.
Gabelli Funds portfolio manager Jeff Jonas said last fall that another dividend cut was likely for Walgreens.
“The balance sheet is slowly improving, but that still needs to improve further,” he said.
The company says it has paid cash dividends every quarter since 1933, a streak stretching more than 90 years or nearly 370 straight quarters.
Shares of Walgreens Boots Alliance Inc., based in Deerfield, Illinois, tumbled more than 15% to $9.66 after markets opened Friday. Broader indexes were up slightly.
The drop wiped out a brief rally the shares had after Walgreens reported better than expected earnings earlier this month. The stock has now shed more than half its value since last spring, and company shares have been on a steady decline for a decade.