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Summary

  • Exxon’s dividend yield (2.60%) is higher than Wal-Mart’s (2.50%).
  • Wal-Mart is less volatile, & has a lower payout ratio than Exxon.
  • Both Exxon and Wal-Mart are the leaders in their respective industries.

Exxon (NYSE:XOM) is the world's largest integrated oil and gas company. The company has a market cap of $418 billion, and has had 5 years of profits higher than any other corporation in history. Exxon has increased its dividend each year for 31 years because of its consistent profitability. (Source: Largest Corporate Annual Earnings)

Wal-Mart (NYSE:WMT) is the world's largest retailer. The company has a market cap of $248 billion. It serves 35 million customers every day through its 10,700 retail locations in 27 countries. Wal-Mart has increased its dividend for 41 consecutive years by focusing on reducing prices and passing savings on to consumers. (Source: Wal-Mart 2013 Annual Report)

Exxon and Wal-Mart are leaders in their respective industries. Both companies derive their competitive advantages from economies of scale. What company is the better investment for long-term oriented shareholders?

Dividend Yield

  • Exxon: 2.60%
  • Wal-Mart: 2.50%

Stocks with higher dividend yields have historically outperformed stocks with lower dividend yields. The highest yielding quintile of stocks outperformed the lowest yielding quintile by 1.76% from 1928 to 2013. (Source: Dividends: A Review of Historical Returns)

Exxon has a slightly higher dividend yield than Wal-Mart. Exxon wins this category, but not by much.

Payout Ratio

  • Exxon: 33.40%
  • Wal-Mart: 31.00%

Source: Finviz

High yield low payout ratio stocks outperformed high yield high payout ratio stocks by 8.2% per year from 1990 to 2006.
(Source: High Yield, Low Payout by Barefoot, Patel, & Yao, page 3)

Exxon and Wal-Mart are almost identical to each other in this category as well. Wal-Mart has a slightly lower payout ratio. It holds the small advantage.

Revenue per Share Growth

  • Exxon: 8.26%
  • Wal-Mart: 8.63%

Growing dividend stocks have outperformed stocks with unchanging dividends by 2.4% per year from 1972 to 2013. (Source: Rising Dividends Fund, Oppenheimer, page 4)

Once again, Exxon and Wal-Mart are almost identical. Wal-Mart has grown revenue per share slightly faster over the last 10 years, but the margin is negligible.

Long-Term Price Volatility

  • Exxon: 25.33%
  • Wal-Mart: 19.14%

The S&P Low Volatility index outperformed the S&P 500 by 2.00% per year for the 20-year period ending September 30th, 2011. (Source: Low & Slow Could Win the Race, page 3)

This is the only category where Wal-Mart pulls away from Exxon. Wal-Mart's stock price has a standard deviation of just 19.14% over the last 10 years, compared to 25.33% from Exxon.

(click to enlarge)

Source: Google Finance

The graph above shows the relative stability of Wal-Mart's stock price versus Exxon's. Exxon has increased more per share over the last 10 years, but both companies have grown revenue by over 8% per year.

Wal-Mart's P/E ratio has gone down from 23 to around 16, while Exxon's P/E ratio has increased from around 11.5 to 13.13. The decrease in Wal-Mart's P/E and increase in Exxon's has caused the performance difference between the two stocks over the last 10 years.

Valuation

Exxon and Wal-Mart both appear to be fairly valued at this time based on peer comparison.

Company

Ticker

P/E

Exxon

XOM

13.21

Shell

RDS.A RDS.B

14.16

Chevron

CVX

10.53

PetroChina

PTR

11.53

Total SA

TOT

12.99

BP

BP

6.58

Company

Ticker

P/E

Wal-Mart

WMT

15.85

Big Lots

BIG

17.89

Costco

COST

25.24

Dollar General

DG

17.49

Family Dollar

FDO

14.97

PriceSmart

PSMT

31.96

Target

TGT

19.37

Exxon & Wal-Mart are both undervalued in comparison to the S&P500.

  • S&P500 P/E: 18.15
  • Exxon P/E: 13.21
  • Wal-Mart P/E: 15.85

Source: Multpl.com

Exxon is the cheaper of the two companies based on P/E ratio.

Conclusion

Both Exxon and Wal-Mart appear to be fairly priced at this time. Both have a strong history of rewarding shareholders through growth, share repurchases, and dividends. Both companies are the leaders in their industries. Wal-Mart is favored based on the 8 Rules of Dividend investing, but only very slightly. Either business is an excellent addition to a long-term dividend growth portfolio.

Disclosure: I am long WMT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Exxon Vs. Wal-Mart: Big Oil Or Super Discounter Best For Shareholder Return?