This article reviews Wal-Mart (NYSE:WMT) for trends in revenue, net income, dividends, share repurchases, and long-term debt from January/February 2003 through 2012.
The first thing that stands out is how well management did in increasing revenue. It went from $246.525 billion in 2003 to $446.950 billion in 2012. Next was the impressive increase in net income, which grew from $8.039 billion to $16.287 billion. Unfortunately, the market value held by non-affiliated owners declined from $166 billion to $92 billion. Meanwhile, the proxy statement showed that insiders increased their ownership stakes from 38.78% (March 2002) to 50.12% (March 2012), while reducing the number of shares held.
Long-term debt moved higher, from $16.607 billion in 2003 to $44.070 billion in 2012. Wal-Mart's long-term debt increased $27.463 billion, or 165%. Also, long-term debt increased faster than net income. In 2003 it took 2.07 years of net income to cover long-term debt, and by 2012 it had increased to 2.71 years. Not a major increase. It took revenue 0.07 years to cover long-term debt in 2003 and 0.10 years in 2012.
Dividends grew from $1.328 billion, or 16.5% of net income, to $5.048 billion, or 31.0% of net income. The amount paid in dividends increased each year.
What percentage of net income was paid out in cash during this time frame?
- 25.3% was enjoyed by owners, or $31.458 billion
- 46.5% was enjoyed by departing owners, or $57.687 billion
- 71.8% total payout ratio, dividends + repurchase
What percentage of revenue went for dividends and share repurchases?
- 0.9%: 10-year total for dividends
- 1.6%: 10-year total for share repurchase
- 1.1% of revenue went for dividends in 2012
- 1.4% of revenue went for the repurchase of shares in 2012
- 0.5% of revenue went for dividends in 2003
- 1.3% of revenue went for share repurchases in 2003
What percentage of net income was paid out in cash during 2012?
- 31.0%: Dividends
- 38.7%: Share repurchase
- 69.7%: Total payout
Why did departing owners enjoy more cash than owners?
- The board of directors, elected by shareholders, decided it was in the best interest of shareholders if their cash is given to departing owners.
- Analysts have suggested share repurchase add value for remaining owners.
- It permitted insiders to increase their ownership stake.
What bonds are available for Wal-Mart?
A list of Wal-Mart bonds from FINRA can be found here.
The financial markets have not rewarded Wal-Mart for the growth in revenue, net income and dividends.
Click to enlarge image.
Over the past 10 years the average amount paid as dividends was $3.146 billion, with $5.769 billion used to repurchase shares. Had all $8.915 billion been used to pay dividends, the potential market value discounted at various rates is shown below:
- $445.725 billion at 2.00%
- $297.150 billion at 3.00%
- $222.863 billion at 4.00%
- $178.290 billion at 5.00%
- $148.575 billion at 6.00%
- $127.350 billion at 7.00%
During 2012, $11.346 billion of cash was spent with $6.298 billion going to repurchase shares and $5.048 for dividends. Discounted at 4.00%, the implied market value would be $283.65 billion.
It would appear that paying owners the cash as dividends rather than repurchasing stock might have added more value, but then the insiders wouldn't have been able to increase their ownership stake by over 10% without buying a single share.
What should an investor do?
Long-term investors may want to consider a combination of common stock and bonds. There appears to ample room for dividend growth by shifting funds used to repurchase shares to the payment of dividends. Only time will tell if that happens.
Data taken from 10-K filings at the SEC website.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.