Wal-Mart Stores (WMT) lifts dividend by 2% & posts better than expected sales growth

Wal-Mart’s (NYSE:WMT) dividend was increased by 2%.  Its overall yield is 2.84%. The firm started paying a dividend in 1973.

Wal-Mart is the largest retailer on the globe. Its annual revenue approaches $500 billion from over 11,000 stores in 28 countries. Of this revenue, nearly $15 billion is from on-line sales. Roughly half of all sales comes from grocery products. The retailing giant operates through three unique segments: Wal-Mart U.S., Walmart International, & Sam’s Club. The company operates a very wide variety of formats including supermarkets, hypermarkets, membership-only stores, and discount stores.  The company was founded in 1945 and is located in Bentonville, Arkansas.

Wal-Mart has maintained a three-year growth rate of dividends of 2 percent. Wal-Mart currently ranks 2nd in dividend yield within the large cap services, discount variety stores category. The quarterly dividend for the April payment will be $0.51 versus the prior year rate of $0.50 per share. Wal-Mart is a member  of our Top 100 Dividend Stocks.  (see below).

top-100

The dividend will be paid at the new higher rate on April 3, 2017, to shareholders of record at close of business on March 10, 2017. Wal-Mart Stores, Inc. is currently priced at $71.74. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
3/10/2017 0.51
12/7/2016 0.5
8/10/2016 0.5
5/11/2016 0.5
3/9/2016 0.5
12/2/2015 0.49
8/5/2015 0.49
5/6/2015 0.49
3/11/2015 0.49
12/3/2014 0.48
8/6/2014 0.48
5/7/2014 0.48
3/7/2014 0.48
12/4/2013 0.47
8/7/2013 0.47
5/8/2013 0.47
3/8/2013 0.47
12/5/2012 0.398
8/8/2012 0.398
5/9/2012 0.398
3/8/2012 0.398
12/7/2011 0.365
8/10/2011 0.365
5/11/2011 0.365
3/9/2011 0.365
12/8/2010 0.303
8/11/2010 0.303
5/12/2010 0.303
3/10/2010 0.303

Analysis of Wal-Mart is based upon our five key criteria for the Top 100 list, which include;

Category Value Score
Dividend Yield 2.84% 164
Dividend Growth (3-7 year avg) 5.0% 303
Forward P/E 15.52 116
S&P Financial Rating AA 40
Beta 0.65 50
Total Score 673
% Yield 3 Year Div. Growth Rate 7 Year Div. Growth Rate SPS 2016 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr low Yield % 5 yr max Yield %
2.84% 2.0% 8.0% 166.65 0.43 0.38 0.62 2.03% 3.39%

Positives;

  • Wal-Mart’s dividend yield is above that of the S&P 500 Index.
  • Wal-Mart has paid out a dividend consecutively for the past 44 years.
  • Wal-Mart maintains an investment grade rating of AA.
  • Wal-Mart has maintained a three-year growth rate of dividends of 15.3 percent.
  • Wal-Mart maintains a beta of 0.65, lower than the average company.
  • Wal-Mart’s current dividend yield (2.84%) is above its five-year average historical dividend yield.
  • Wal-Mart is trading below its ten-year average price/sales (P/S) ratio.

Latest Earnings & Overall Analysis:

Wal-Mart issued its earnings data on February 21st. The company reported $1.30 EPS for the Q4 quarter, topping the consensus estimate of $1.29 by $0.01.  Its U.S. business showed a large jump in Q4 earnings including the biggest domestic same-store sales increase in nearly five years. Revenue came in at $130.9 billion versus the $131.2 billion consensus estimate by analysts. The retailer’s total sales went up slightly at 1 percent. Grocery and apparel performed the best in the quarter.

On-line sales were very healthy as its recent acquisition of Jet.com contributed to a rise of nearly 30 percent in on-line revenue. and the continued rollout of its online grocery service.  The Jet.com acquisition was one of three as the retail giant attempts to better compete with Amazon.com   In the attempt, the firm is now offering free shipping on more than 2 million items for no fee as long as the purchaser buys merchandise that meets a minimum threshold of $35.

Its international division revenue was up  by 3 percent, excluding currency fluctuations. However, with the impact of currency, revenue fell by 5 percent.  Nearly each of the 11 primary international markets had positive sales.  In fact, over half maintained revenue growth of nearly 5%.  Mexico was a bright spot, with its Walmex showing a revenue increase of 7%.  Sales within the United Kingdom were very weak, making it the worst international market for Wal-Mart. Sam’s Club revenue was better than expected, rising by 2.5 percent. As for the future, Wal-Mart has projected earnings per share of $4.30 a share, plus or minus ten cents. This was slightly below analyst expectations for 2017 of  $4.33

2016 2015 2014 2013 2012
Earnings per Share 4.35 4.57 5.07 5.11 5.02
Annual Dividend 2 1.96 1.92 1.88 1.59
Payout Ratio 45.98% 42.89% 37.87% 36.79% 31.67%

Overall the company is a strong dividend payer with a solid, albeit slower, future. The retail company has been attacked on all sides, from Amazon to Costco. Its low price advantage has been slowly eroded.  But the company’s recent results show promise. Its e-commerce division is growing nicely and its recent acquisitions within the space should expand its capabilities.  The firm is also opening smaller stores that are under the   Neighborhood Market brand.  These stores carry a smaller amount of merchandise including basic goods, grocery, and pharmacy. Much like a larger CVS.  The firm is also concentrating efforts on international growth in emerging markets. Though competition is tough, the firm’s scale of operations should help it grow faster in these markets.

Wal-Mart is a solid investment candidate for any dividend investor. Although the dividend growth is slow, its payout ratio has room to grow at 45%. The firm has a near 3% yield, a stellar balance sheet, and AA credit rating. The firm is trading at 15 times next year’s earnings and on a price/sales basis, is very cheap. The stock is also one of the least volatile in the market, with a beta of 0.65

Earnings per Share 2017 (projected) 4.5
Dividend 2.04
Payout Ratio 45.33%

Based on the firm’s above average dividend yield, consistent dividend growth, low beta and impressive financial credit rating, Wal-Mart Stores Inc. qualifies as one of our Top 100 Dividend StocksPlease subscribe to our monthly premium newsletter to find out more about which stocks are listed in our model portfolio.  

Wal-Mart Stores, Inc. Dividend Yield Historical Chart (Click to enlarge)

wmt2

Chart Explanation:  Dividend growth stocks may be viewed undervalued when the current yield is above historical readings for the past 5 years. 

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