Friday, August 23, 2013

Stock Analysis of Wal-Mart

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. It operates retail stores, restaurants, discount stores, supermarkets, supercenters, hypermarkets, warehouse clubs, apparel stores, Sam’s Clubs, and neighborhood markets, as well as walmart.com; and samsclub.com. The company is a member of the dividend aristocrats index, has paid dividends since 1973 and increased them for 39 years in a row.

The company’s last dividend increase was in March 2013 when the Board of Directors approved an 18.20% increase to 47 cents/share. The company’s largest competitors include Target (TGT) and Costco (COST)

Over the past decade this dividend growth stock has delivered an annualized total return of 5.30% to its shareholders.



The company has managed to an impressive increase in annual EPS growth since 2004. Earnings per share have risen by 10.60% per year. Analysts expect Wal-Mart Stores to earn $5.30 per share in 2014 and $5.82 per share in 2015. In comparison Wal-Mart Stores earned $5.02/share in 2012. On average, Wal-Mart has also managed to repurchase approximately 4.08% of its shares outstanding each year over the past five years as well.
The return on equity has remained consistently above 20%, and has increased to 23% by 2012. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 18.10% per year over the past decade, which is higher than to the growth in EPS.

An 18% growth in distributions translates into the dividend payment doubling every four years. If we look at historical data, going as far back as 1976 we see that Wal-Mart Stores has actually managed to double its dividend every three years on average.

The dividend payout ratio has increased from 17.70% in 2004 to 32% in 2012. The expansion in the payout ratio has enabled dividend growth to be faster than EPS growth over the past decade. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently, Wal-Mart Stores is attractively valued at 14.30 times earnings and has an adequately covered dividend but only yields 2.50%. In comparison, Target (TGT) trades at 15.40 times earnings and yields 2.50%.

Full Disclosure: Long WMT and TGT

Relevant Articles:

Target Corporation (TGT) - A high growth, attractively valued dividend stock
The predictive value of rising dividends
Dividend Investing – Science versus Intuition
Eleven Dividend Paying Stocks I Purchased Last Week
Attractively valued dividend stocks to consider today

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