Recent market trends reveal significant challenges for two prominent dividend stocks: Walgreens Boots Alliance (NASDAQ: WBA) and Western Union (NYSE: WU). Investors eyeing high-yield opportunities might find both stocks currently trading at near 52-week lows, raising the question of whether this is an opportune moment to invest.
Over the past year, Walgreens Boots Alliance has seen its share price plummet around 62%. The shock of a announced dividend cut in January, from $0.48 to $0.25 per share, sent investors reeling, leading to an ongoing decline. Despite the downturn, the reduced payout presents a striking yield of 11.5% for those willing to buy in now. While this high yield could be enticing for long-term investors aiming for substantial returns, the company’s financial outlook is clouded.
Walgreens, one of the largest global purchasers of prescription medications, has struggled in recent years due to intensifying competition from three dominant pharmacy benefit managers (PBMs): CVS Health, UnitedHealth Group, and Cigna. These PBMs control nearly 80% of prescriptions in the U.S., further complicating Walgreens’ quest for profitability. The company’s attempts to pivot towards primary care services have not yielded promising results, highlighted by a staggering $12.4 billion impairment charge earlier this year related to its venture with Cigna, VillageMD.
While Walgreens’ stock may appear appealing at a low price-to-earnings ratio of approximately 4.6 based on future earnings forecasts, the lack of a solid recovery strategy in light of the challenges posed by PBMs makes it a high-risk investment. Investors are advised to proceed with caution until the company outlines a clearer pathway to regain profitability and stabilize its dividend payments.
Turning to Western Union, this iconic remittance services provider has seen its share price drop over 50% since peaking in 2020. After a brief recovery this spring, disappointing quarterly earnings reports have driven the stock back toward its 52-week low, now offering an 8% yield for investors. While the company’s long-standing brand is well-known, it has not shielded it from emerging disruptors in the money transfer space.
In the first half of 2024, Western Union reported a 4% drop in revenue year over year. This decline comes as competitors like Remitly (NASDAQ: RELY) and Wise (LSE: WISE) exert pressure, with growth rates of 31% and 24%, respectively. These upstart companies have positioned themselves as formidable players in the remittance industry, forcing Western Union to compete aggressively on exchange rates.
With dividends unchanged since 2021, it’s difficult to envision Western Union increasing its payout amidst a shrinking market position. Trading at about 6.7 times projected earnings, the stock may seem inexpensive, yet the competitive landscape suggests that customers may increasingly gravitate toward more modern services. For cautious investors, monitoring Western Union from a distance appears wise as market dynamics continue to evolve.
In summary, while both Walgreens Boots Alliance and Western Union present high dividend yields that can attract income-focused investors, fundamental challenges remain. Walgreens struggles under the weight of industry competition and an insufficient recovery plan, while Western Union needs to adapt in a rapidly changing market dominated by agile newcomers. Savvy investors should assess their risk tolerance carefully and keep an eye on potential future developments with these companies before making any investment decisions.