Sunday, June 15, 2014

Recent Buy: WMT

Jun 13, 2014: Bought 34 shares of WMT at $75.42 per share.

Wal-Mart Stores, Inc. (WMT) is the world's largest retailer. Based in Bentonville, Arkansas and founded in 1945, WMT is a multinational retailer consisting of more than 11,300 stores under 71 banners in 27 countries. It is the biggest private employer in the world with over two million employees.

WMT is a Dividend Champion with an impressive streak of 41 years of dividend increases. It pays quarterly dividends in January, April, July and October. The current dividend is 48¢ per share, so starting yield on cost is 2.55%. WMT's 5-year dividend growth rate is a solid 14.15%.

With a 5-year Beta averaging 0.47, WMT's share price performance has been consistent, though not terribly impressive. See the following graph of WMT's performance relative to that of the S&P 500:


Analysis of WMT


My fair value estimate of WMT is $80.50, so I picked up shares at a discount of 6.74%. The following table provides some key statistics, with highlighted values relating directly to my selection criteria.


WMT easily meets the requirements of the Chowder Dividend Rule, which requires that the sum of a stock's dividend yield and its 5-year dividend growth rate exceed 12%. For WMT, the sum is 16.65%. Additionally, WMT has an EPS payout ratio of 0.3983, just below the required 0.4 level.

WMT misses out on the following criteria:
  • Price/Earnings to Growth (PEG) ratio < 2 (2.01)
  • Debt to equity ration less than 0.50 (0.76)
Based on these statistics, WMT earns 5 out of a possible 7 stars: (*******)

The following chart shows WMT dividend payments and earnings per share over the last 10 years. WMT has grown its dividend steadily and the EPS growth similarly is trending up:


Other ratings for WMT


 Zacks Rank  3-Hold
 S&P Capital IQ's Stock Report (*****) Hold
 Thomson Reuters StockReport+   (4/10) Neutral 
 MorningStar Rating (*****)
 The Motley Fool's CAPS Rating  (*****)

Concluding Remarks


WMT appears in 5th place on my June dashboard of dividend candidates and is the top candidate in the Consumer Staples sector. This is my 3rd Consumer Staples holding in DivGro. I'm aiming to own 5 Consumer Staples stocks.

WMT's recent earnings record has been disappointing. In the latest quarter, WMT announced earnings of $1.10 per share, which is down 3.5% from the year-ago number. Sales increased only 0.8%. Unseasonably cold and disruptive weather conditions, as well as currency headwinds, are blamed for the poor results.

Compounding WMT's retail challenges is the intense media scrutiny it experiences due to its size and scale of operations. Some missteps in food safety compliance and food mislabeling have dented the company's reputation. WMT is also facing bribery allegations and lobbying charges in several countries, which not only hurt investor confidence, but also are costing the company dearly in legal fees.

Despite these negatives, WMT has sound long-term fundamentals, including its wide scale of operations, strong international presence, increased cost savings and a solid e-commerce business. The latter has performed particularly well, with sales growing by more than 30% to over $10 billion in fiscal 2014. The company expects to grow global e-commerce sales to over $13 billion in fiscal 2015, with continued improvement of Pangaea, its global technology platform, as driver of sales across websites in the U.S., the U.K. and Brazil.

WMT regularly returns value to shareholders. In the last two years, the company has returned $25.8 billion through share repurchases and dividends. WMT has increased its dividend for 41 consecutive years, including a 2% increase (so far) for fiscal 2015 and an 18% increases for fiscal 2014, which ended January 31, 2014.

34 shares of WMT adds $75.42 of expected dividend income, increasing DivGro's projected annual dividend income to $4,360.63.

WMT is the 31st holding in DivGro.

WMT is one of the most popular holdings among dividend growth investment bloggers. Do you own WMT, or are you planning to buy shares soon? 

4 comments :

  1. Own and just recently added more. I'm hoping the price will continue to dip so I can buy some more.

    ReplyDelete
    Replies
    1. I'm late to the party... WMT has popped up on my dashboard of candidates for several months, but other candidates seemed more interesting to me at the time. Well, this time it was WMT's turn. I'm happy to add it at this level, which secures a 2.55% yield on cost. Not bad...

      Cheers!

      Delete
  2. DivGro - Nice buy, with the recent dip, I think WMT is definitely looking more attractive these days. After all, 41 years of consecutive dividend increase and the number #1 retailer, seems like a very stable company to me. :) AFFJ

    ReplyDelete
    Replies
    1. Thanks. I've been holding off on WMT for a while now. The recent dip convinced me, though. That allowed me to secure a nice enough yield on cost. Plus, as you say, WMT is the #1 retailer and a dominator in the Consumer Staples sector. And you've got to like the 41 year streak of dividend increases!

      Cheers!

      Delete

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