Dividend Analysis: Wal-Mart

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. It operates through three segments: Wal-Mart Stores, Sam's Club, and International. The company is a dividend aristocrat, as well as a major component of the S&P 500 and Dow Jones Industrials indexes.

Over the past 10 years this dividend growth stock has delivered an annual average total return of 10.50 % to its shareholders, with the majority of the gains coming in the late 1990’s. After peaking at $70.25 in late 1999 though, the stock has gone nowhere for eight years, while at the same time, the company has managed to deliver an impressive 16% average annual increase in its EPS.

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The ROE has been hovering in the 18% - 20 % range over the past 10 years.

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Annual dividend payments have increased over the past 10 years by an average of 21% annually, which exceeds the growth in EPS. A 21% growth in dividends translates into the dividend payment doubling almost every 3.5 years. If we look at the historical data going as far back as 1993, WMT has indeed managed to double its dividend payments every three and a half years.

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If we invested $100,000 in WMT on December 31, 1997 we would have bought 5071 shares (Adjusted for 2:1 stock split in April 1999). Your first dividend payment would have been $197.77 in March 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend payment would have risen to $1211 by December 2007. For a period of 10 years, your quarterly dividend income has increased by 464%. Althought, if you reinvested it, your quarterly dividend income would have increased by 612%.

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The dividend payout has increased from 20% to 30% over the past 10 years. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

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I think that WMT is attractively valued with its low price/earnings multiple of 17, and yield at 1.90%.

Disclosure: I own shares of WMT.

Comments

[2020]

Good analysis - the correct way to look at a long term investment.

[rickd24]

It would have been nice to see two more numbers - how many total shares you would have now after re-investing your dividends, and how much it would all be worth. In other words, would all those reinvested dividends make up for the big losses in the share price?

I just checked the historical prices, and saw that you chose a purchase date that makes Wal-Mart look a LOT better than it really has been. If you had bought on Dec 31, 1998 instead, one year later than your date, the stock price was up to 81.44, a 106% increase over the $39.44 price on Dec 31, 1997, and you would have big losses now instead of big gains. Where are we now? Wal-Mart closed at 53.63 today, right in the middle of that range, and right where it's been stuck for the past eight years.

You said that you think Wal-Mart is attractively valued right now. I'd like to know what you base it on. Increases in dividend payouts are nice. But increases in stock prices are MUCH nicer. And Wal-Mart has been VERY lacking in that department for the past 9 years.

If the dividend had been higher all these years, I would agree with your analysis more. But right now the yield is still less than 2% per year, even with all those big increases you mentioned. That's because it was SO low back in 1998. That first $197.77 dividend that you mentioned was a miserly .79% per year.

A better project would be to figure out why the biggest company in the world has been such a poor investment the past 8 years. I sure wish I knew the answer to that question. I'm just glad I bought my shares in the early 90's rather than the early 00's.

[GTO]

Wall Street biggies have bashed this company for years, telling everyone how bad they treat employees ( WM calls them associates)
All the while they have hurt the WM employees 401Ks and Profit sharing by all the bad mouthing. But WM just keeps getting bigger and better.

[granger]

Great as always. Keep it coming. Your dividend and long term analysis articles are one of my favorites on Seeking Alpha. Thank you!

[DividendGrowthInvestor]

Rick,

I always look at how the companies performed over the past 10 years. Just because the company's stock has not appreciated significantly over the past 10 years doesn't make be hate the stock. 10 years ago nobody liked Russian Stocks. Now Russian stocks have appreciated a lot. Individual investors always like to buy the stocks that rose a lot in the past. And thus buy high and later most of them sell low.
And even if I had picked the end of 1998, the stock price would have been in the 40's adjusted for the 2:1 split in 1999 and you still would have been ahead.
I like the idea of a company that raises its dividends year after year. In WMT's case the company doubles its dividend every three and a half years. Which means that a 2% yield now would translate into a 4% yield in 2011-2012.
You could also read more about my stock screening criteria here:
dividendgrowth.blogspo...

[bill d]

A while back I got excited with WMT when it looked like it was starting to move - blah.
Now I see this nice little jump so I bought some 50 June puts.
Already making money - seems like WMT likes 50