Shares of Walgreens Boots Alliance (WBA 1.06%) sank 13.6% in January, according to data provided by S&P Global Market Intelligence. The main factor weighing on the pharmacy giant was its decision to slash its dividend. That ended a streak of dividend increases that lasted nearly half a century.

The end of an era

Walgreens started 2024 off on a sour note. The pharmacy giant slashed its quarterly dividend by 48%. The company made the move to strengthen its balance sheet and cash position. That will allow the company to reinvest the retained cash into its growth initiatives, which it expects will grow shareholder value. The cut ended an era of dividend growth that had lasted nearly 50 years.

Walgreens had to cut its dividend due to challenges facing its pharmacy business, which made it more difficult for the company to fund its strategy to build a U.S. healthcare business. Those challenges were evident in the company's first-quarter financial results, which it reported in early January. While Walgreens sales rose 8.7% to $36.7 billion, its earnings tumbled more than 40% to $571 million, or $0.66 per share. Meanwhile, the company was burning through cash to build its U.S. healthcare business. Its operating cash flow was negative $281 million during the first quarter, while free cash flow was negative $788 million.

Walgreens is taking several steps to reinvigorate earnings growth and improve its cash flow. It's on pace to achieve $1 billion in cost savings, $600 million in reduced capital spending, and $500 in working capital improvements. Those cost reductions and a lower dividend will increase the company's cash flow, giving it more to invest in growing its U.S. healthcare business and strengthening its balance sheet.

The company has also been working to sell noncore assets to further enhance its financial profile. In early February, Walgreens announced that it had sold another $992 million of Cencora shares. That reduced its ownership stake from 15% to 13%. The company expects to use the proceeds to repay debt and to help fund its growth. Walgreens is also considering an initial public offering of its UK Boots pharmacy business to bring in additional cash.

Time to buy the beaten-down healthcare stock?

Walgreens is working to turn around its operations and reaccelerate growth. Unfortunately, its struggles cost the company its rich heritage of increasing its dividend. However, it believes that cutting its payout will allow it to get back on track quicker by enabling it to retain more cash to enhance its balance sheet and fund its growth initiatives.

That turnaround potential makes Walgreens look like a compelling opportunity. Its shares have lost over half their value over the past three years. That's why it still offers an attractive dividend yield (4.4%) even after its reduction. Walgreens could deliver strong total returns if it can turn things around and reaccelerate its growth rate.