Solid Dividends From The Consumer Sector

Includes: COST, M, WMT
by: Equity Whisper

Investing in the stock market always comes with a certain amount of risk. This is why asset managers always recommend diverse portfolios. Dividend stocks are an effective way of generating a steady stream of income, especially in the current fragile debt market. Thus the three stocks mentioned below are good for investors as they have shown significant dividend growth in the past few years.

Wal-Mart Stores

Wal-Mart Stores Inc. (NYSE:WMT) operates a chain of large departmental and warehouse stores worldwide. It operates in three sections including Wal-Mart international, Wal-Mart U.S. and Sam's Club.

The company reported net sales of $113.4 billion, up 1% y/y and earnings per share of $1.14, up 4.6% compared to EPS of $1.09 in the first quarter of last year. Wal-Mart paid $1.6 billion in dividends to shareholders. For the fiscal year 2014, the company increased its dividend by 18% to $1.88 per share. Fluctuation in the exchange rate had a negative impact on the company's sales. Currency exchange rate is basically the exchange rate used to translate the operating result from all countries where the functional currency is not the U.S. dollar.

Wal-Mart has a Dividend yield of 2.57% and payout ratio of 41.23%. In the first quarter, It paid a quarterly dividend of $0.47, up 20.51% year-over-year. This increase led to improvement in the dividend payout ratio to 41.23%, up from 23.95% in the preceding quarter.

On the basis of financial strength, earning history and dividend growth, Wal-Mart is low risk company and attractive to long-term investors. Over the past few years, it has improved its EPS and dividends. One of the important ratios for investors is the Debt-to-Equity ratio because the interest payments reduce a company's profit, which in turn reduces the dividend. The company has a Debt-to-equity ratio of 0.47. Usually the company with a ratio under 1 is attractive for investors.

Costco Wholesale Corporation

Costco Wholesale Corporation (NASDAQ:COST) operates membership warehouses that offer branded and private-label products in a range of merchandise categories.

For the third quarter ended 2013, Costco reported an 8% increase in net sales from the third quarter a year ago, to $23.55 billion. Changes in gasoline prices and weakening currency against the U.S. dollar negatively impacted Costco sales. Net income for the quarter was $459 million, or $1.04 per diluted share, compared to $386 million, or $0.88 per diluted share, last year. The company has a return on equity (TTM) of 18.07% above the sector average of 10.99%.

In the third quarter, Costco paid a dividend of $0.27, up 12.5% year on the year, and a drop of -96.26% from the previous quarter. The Payout ratio is 25.96% in the third quarter ended May 2013. Costco stock surged 6% so far this year. It has a price-to-earnings ratio of 23.70 as compared to Wal-Mart's 14.41.

Macy's Incorporation

Macy's, Inc. (NYSE:M) operates a chain of departmental stores and Internet Websites in the United States under two brands (Macy's and Bloomingdale's). As of May 31, 2013, it operated approximately 840 department stores under the names of Macy's and Bloomingdale's in 45 states.

Macy's sales increased to $6.39 billion, up 4% from $6.14 billion a year ago and the profit rose 20% to $2.17 billion. The company is raising its dividend to 25 cents from the current 20 cents and announced a plan to buy back $1.5 billion in stock. Based on the Price-to-earnings ratio of 13.76 and price to cash flow ratio of 7.44, Macy's is an undervalued stock.

In the first quarter, Macy's paid a quarterly dividend of $0.20 with no change from the previous quarter and year-over-year. The company's payout ratio increased to 36.36% from 10.93% in the previous quarter. The company's Debt-to-equity ratio is 1.18 as compared to the industry average of 0.49 meaning Macy's has higher debt than the industry average.


Based on the sound fundamentals and increasing profit, all three stocks are good for long-term investors. Currency exchange rate fluctuations impacted negatively on the sales of Wal-Mart and Costco, but all three companies have room to grow and dividends can also increase.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Additional disclosure: Equity Whisper is a team of analysts. This article was written by our consumers analyst. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.