Shares of Wal-Mart (WMT) ended the week on a strong note. At its annual shareholder meeting its Board of Directors approved a new $15 billion share repurchase program, sparking enthusiasm among investors.
Despite some recent operational and public relationship difficulties shares continue to gain ground. Wal-Mart's financially sound strategy has created a lot of shareholder value already, and is likely to do so in the future.
Boosting Shareholder Payouts
The main topic of Wal-Mart's annual meeting was the announcement of a new $15 billion share repurchase program by the company's Board of Directors. The new repurchase program allows Wal-Mart to repurchase up to 6% of its shares outstanding at current prices.
If Wal-Mart takes two years to complete the share repurchase program, it will provide quite some support for its shares. At this pace, Wal-Mart has to repurchase roughly 400,000 shares per calendar day at current prices. In comparison, some 8 million shares have exchanged hands on average over the past month.
The new repurchase program replaces Wal- Mart's previous $15 billion share repurchase program which has been announced at is annual meeting in 2011. Under its old repurchase program, Wal-Mart had $712 million remaining which has now been cancelled. All of its shares which have been repurchased during the program have been retired.
CFO Charles Holley commented on the decision, "Our strong cash flow enabled the company to invest in growth and repurchase over $14 billion of our stock during the last two years. We're pleased to continue our share repurchase program with this new $15 billion authorization."
On top of the new repurchase program, the company has increased its annual dividend by 18% earlier this year to $1.88 per share, thereby boosting the dividend yield to 2.5%.
Some Other Interesting Comments
CEO Mike Duke made some other interesting comments as well during the meeting.
Wal-Mart is on track to generate $10 billion in e-commerce sales by the end of this fiscal year. This statement is extra interesting after rumors surfaced that Amazon.com (AMZN) might contemplate making an entry into the online grocery market.
Duke also addressed criticism that Wal-Mart is not paying its associates not high enough wages to live on, thereby relying on state support.
According to Duke 75% of store management teams started as hourly associated, and some 180,000 of them received a promotion last year. On top of that, Wal-Mart has committed itself to hire a 100,000 veterans in the coming five years, and has employed 300,000 associates for over a decade.
Wal- Mart ended its recent quarter with $8.9 billion in cash and equivalents and $57.1 billion in short and long term debt, for a sizable net debt position of around $48 billion.
The company generated annual revenues of $469.2 billion over its recent fiscal year, up 5.0% on the year before. Net earnings rose by 8.3% to $17.0 billion.
The market is currently valuing Wal-Mart at $253 billion. This values its operating assets at 0.55 times annual revenues and 15 times annual earnings.
Wal- Mart currently pays a quarterly dividend of $0.47 per share, for an annual dividend yield of 2.5%.
Some Historical Perspective
After a "lost" decade, shares of Wal-Mart have finally seen some decent gains in 2012 and so far in 2013. Between 2003 and 2011, shares have traded in a $40-$60 trading range. A steady rally from that point in time have propelled shares to highs of $80 in May. After a modest correction shares are exchanging hands at $76 per share.
Between 2009 and 2012, Wal-Mart has managed to grow its revenues by a cumulative 15% to little over $469 billion. Net earnings rose by 18% to $17.0 billion in the meantime. At the same time, Wal-Mart retired little over 12% of its share base outstanding, thereby growing its earnings per share by almost 35%.
After its shares were stuck for a decade, Wal-Mart's share price has finally moved higher in recent times. This might seem surprising given the disappointing comparable sales growth rates in recent times, the overhang of the Mexican bribery allegations, and possible consequences of new safety proposals after a factory collapse in Bangladesh killed over a 1,000 people recently.
On top of that remain the long term allegations that the largest US private employer is underpaying its 1.4 million "associates" in the US. The "OUR Walmart" organization claims that is hourly associates earn on average just $8.81 per our, far below numbers that Wal-Mart is claiming. The public outlash, might eventually force Wal- Mart to increase its salaries, something which obviously will have an effect on margins.
Despite these struggles, shareholders continue to see the benefit of the shareholder friendly strategy which has pushed shares to fresh all time highs. If Wal- Mart will complete is repurchase program in the coming two years, shareholders stand to receive an implicit payout of 3% per annum. On top of that, shareholders will receive a healthy 2.5% dividend yield as well.
Besides paying out cash to shareholders, Wal-Mart is generating plenty of cash to gradually expand its empire. Despite seeing some decent returns in recent years, Wal-Mart trades at an acceptable 15 times annual earning and pays out a healthy 2.5% dividend yield. Given its excellent track record, and the repurchase program, earnings per share are likely to continue to increase in the foreseeable future.
Back in November of last year, I took a look at the prospects for Wal-Mart following the release of its third quarter results. Trading around $69 per share I concluded that short-term weakness offered an excellent entry point for shareholders. Since that point in time, shares have returned some 10%.
The company remains on track to boost long term earnings, making it an excellent choice for any well-diversified investment portfolio.