Seeking Alpha
Long only, value, long-term horizon, dividend growth investing
Profile| Send Message| ()  

Wal-Mart (WMT) is almost always in the news. A couple of months ago we had the bribery scandal in Mexico. Recently Wal-Mart said earnings may not be as strong as previously thought. Either way Wal-Mart serves a purpose. It is able to buy products in such quantities that it can sell them to the public at such a low price. Let's take a look at how Wal-Mart is doing and what it offers to investors.

Wal-Mart has $470.9 billion in revenue for the past 12 months. Wal-Mart has $203,105,000,000 in assets and $126,243,000,000 in liabilities. Of the company's assets $116,681,000,000 are Property Plant and equipment as Wal-Mart owns its own REIT.

Wal-Mart has paid out a dividend since 1974. Not only has Wal-Mart paid a dividend for 39 years, it has increased that dividend every year since. Wal-Mart most recently increased the dividend by 18%. The current dividend is $1.88 at a 2.40% yield. If the dividend continues to increase at a rate of 15% a year; the dividend will double in five years.

At current valuation Wal-Mart earnings are $5.08 for the past 12 months; the current P/E is 14.80. Currently the Graham Number for Wal-Mart is $49.32. The earnings for the past seven years are as follows.

Year

2012

2011

2010

2009

2008

2007

2006

AVG

25 P/E

EPS

$5.02

$4.54

$4.18

$3.73

$3.35

$3.16

$2.92

$3.84

$96.00

Wal-Mart's earnings have grown at an annual rate of 10.25% for the past seven years. Even during the recession Wal-Mart was able to produce steady growth.

Share and Share a like

As you may or may not know I look into the shares of the company when I look at a possible investment. Wal-Mart currently has 3.3 billion shares of which only 1.62 billion are on the market. The majority of the company is still owned by The Walton Family. When I look at an investment I look at it as if I would want to be a major holder in the company. I don't just want to invest I want to be a business partner. I'm in it for the long run. I like to see that the Walton Family still retains a majority ownership in the company. As long as my business interests are in line with theirs, I can't go wrong.

As I have the business partner mentality I want my equity share in the company to increase over time. One way is to reinvest dividends. The second is a share repurchase program. Over the past 20 years Wal-Mart has lowered the outstanding shares by 28%. In June 2011, Wal-Mart announced a $15 billion share repurchase program. This was in addition to the $15 Billion repurchase initiated in 2009.

Challenges

Wal-Mart has challenges ahead. One of the largest challenges that I have encountered on more than one occasion is the company's online shopping segment. Bluntly put, it's crap. For years now we have seen a slow but steady move from brick and mortar shopping to shopping online. Wal-Mart has a limited price match guarantee. On many occasions Wal-Mart will have a price for an item on its own website that is lower than the price in the store. It offers free shipping to the store for the online item. However it will not price match its own website. As a consumer I do not understand this.

My thinking is that if I buy the item from the store at the online price then the store will get credit for the sale and make a customer happy. However If I buy it online and have it delivered to my local store, I still get the lower price and have it delivered locally at no extra cost. The local store now has to attend to the customer but does not get the revenue from the transaction. May be someone can shed some light on what I am missing.

Conclusions

For the long-term investor who has time to reinvest dividends Wal-Mart has a solid track record of returning value to its stockholders for over three decades. Even if you do not plan on reinvesting dividends, Wal-Mart's history of dividend increases suggests a fantastic yield on cost for the patient investor. At a current payout ratio of 33% there is plenty of room to run.

As I've mentioned before, I own 16 shares and look forward to adding to this position. I will be reinvesting all dividends to increase my position as I have no intention of selling my shares. If you are a long-term investor or even someone looking for yield and are patient, Wal-Mart is a solid investment.

Source: Slow And Steady Wins The Race With This Retailer