Dividend-paying stocks can generate plenty of recurring income for your portfolio each year. But investors should always keep in mind that these payments are Never guaranteed. A company facing financial difficulties could be forced to cut the dividend if it cannot find a better option.
The market is full of examples of companies reducing their payouts for a myriad of (good and bad) reasons. Three companies that have had to cut their dividend payments by more than 40% over the past year are Walgreens Boot Alliance (NASDAQ:WBA), Medical Properties Trust (NYSE:MPW)And Cracker Barrel Old Country Store (NASDAQ:CBRL).
Let’s take a look at why they did it and whether these three stocks could now be good contrarian investments.
1. Walgreens Boot Alliance
Drugstore retailer Walgreens Boots Alliance has struggled to maintain profitability for several years. The company typically generates a modest single-digit profit percentage in most quarters, but it’s not uncommon for it to land in the red as well. In three of its last four quarters, Walgreens posted a net loss.
In January, the company announced that it would reduce its quarterly dividend from $0.48 per share to just $0.25 (a 48% reduction). This was a seismic shift for a company that was paying and increasing its dividend for decades. The move came shortly after the company hired a new CEO, Tim Wentworth. One reason for the reduction was to shore up finances needed to continue plans to launch hundreds of clinics as part of a broader health care strategy.
Investors can still get a high 6.3% yield on Walgreens stock, but without stronger financial data, even though the new dividend may not be viable in the long term. Walgreens is also actively trying to sell its Boots pharmacy chain in the UK to raise additional funds, but it is not attracting much interest from buyers.
Walgreens shares haven’t been this cheap in over a decade, so they could be an intriguing investment for contrarians. But with an uncertain path forward, this is a stock that investors will want to keep in check, as losses could continue to pile up for both the company and its shareholders.
2. Medical Property Trust
Medical Properties Trust has been facing problems with financially distressed tenants for several years. Steward Health, in particular, is a major concern for the healthcare-focused real estate investment trust (REIT). He needs his tenants to pay rent, and Steward and a few others healthcare companies had difficulty achieving this.
Medical Properties Trust even provided Steward with financial support over the years, but that didn’t solve the tenant’s problems; in May, Steward announced that it was filing for bankruptcy protection and would sell its hospitals.
Well before that, in August 2023, the REIT announced a new quarterly dividend per share of $0.15, down from the $0.29 it previously paid (a 48% reduction). Given the uncertainty surrounding Steward Health’s future, there is still significant risk associated with Medical Properties Trust and its dividend.
As with Walgreens, the healthcare stock hasn’t traded at its current levels in over a decade. So there could be significant upside potential for contrarian investors, but there could also be significant losses ahead. Investors should purchase the shares at their own risk, as the REIT likely still faces a rocky road ahead.
3. Cracker Barrel Old Country Store
Cracker Barrel operates 660 locations across the country with a restaurant and gift shop. It offers multiple reasons for customers to visit one of its stores, but lately that hasn’t proven to be enough. The company is therefore investing in its operations to increase profitability, as traffic levels have not been particularly strong.
She will innovate her menu and renovate her stores, and she has hired an agency to help strengthen her brand. However, all of these things require cash, and the company will free up cash by cutting its dividend per share from $1.30 per quarter to just $0.25, for a massive 81% reduction in the payout.
Profits have been thin for Cracker Barrel, with the company reporting a profit margin of just 2.9% in its most recent fiscal year (which ended in July), and a tough economy is exacerbating its struggles. Trading at 10 times forward earnings and with shares trading at levels not seen since 2011, Cracker Barrel looks cheap. But it certainly carries a lot of risk.
If the restaurant chain’s efforts to revitalize its stores are successful, it could be another turnaround with significant upside potential. However, due to the high risk involved, Cracker Barrel is a stock that will primarily suit contrarian investors willing to be patient. It may be some time before the company’s initiatives bear fruit â assuming they do.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Cracker Barrel Old Country Store. The Motley Fool has a disclosure policy.
These 3 Dividend Stocks Cut Their Payouts by More Than 40% Over the Past Year was originally published by The Motley Fool
