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Wal-Mart Stores Stock Analysis

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; and The company is a member of the dividend aristocrats index, has paid dividends since 1976 and increased themfor 35 years in a row. The company’s last dividend increase was in March 2012 when the Board of Directors approved an 8.90% increase to 39.75 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 6% to its shareholders.

The company has managed to an impressive increase in annual EPS growth since 2003. Earnings per share have risen by 10.70% per year. Analysts expect Wal-Mart Stores to earn $4.91 per share in 2013 and $5.36 per share in 2014. In comparison Wal-Mart Stores earned $4.54/share in 2012. On average, Wal-Mart has also managed to repurchase approximately 2.70% of its shares outstanding each year over the past decade as well.
 The return on equity has remained consistently above 20%, and has increased to 24% by 2011. 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 17.90% 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 1978 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 16.60% in 2003 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 16.10 times earnings and has an adequately covered dividend but only yields 2.10%. As a result, I would consider adding to my position on dips below $64.

 Full Disclosure: Long WMT

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