Wal-Mart (WMT) Stock Analysis
Wal-Mart (WMT) has paid a dividend since 1974 and increased its dividend for 43 consecutive years; qualifying the company as a Dividend Aristocrat and Dividend Champion.
Current Dividend: $2.04
Dividend Yield: 2.1%
Cash Dividend Payout Ratio: 33%
Market Capitalization: $286 B
Enterprise Value: $325 B
Sector: Consumer Defensive
Industry: Discount Stores
Wal-Mart Stores Inc operates over 11,700 discount retail stores that serve over 260 million customers a week in 28 different countries. Total revenues fall just short of 500 billion including approximately 14 billion in online sales (before the acquisition of Jet.com). Its operations are comprised of three reportable business segments, Walmart U.S.(64% of revenues), Walmart International (24%), and Sam’s Club (12%).
Retail is in a period of disruption. Customers want great prices and the ultimate in convenience. Wal-Mart is investing heavily in people and technology to deliver the shopping experience customers want.
The core business strategy of Wal-Mart is providing customers the quality products they want, when they want it, and at very low prices. They “operate for less, buy for less, sell for less, and grow sales”. The company uses national and private brand options to provide consumers with choices while keeping prices as low as possible.
Dividend Analyzer Checklist
(updated November 2017)
Dividend Safety Score (23/33 points)
Dividend Payout Ratio (ttm): 48%
Cash Dividend Payout Ratio: 33% (11/12 points)
Dividend Per Share (ttm): $2.02
Cash From Operations (CFO) Per Share (ttm): $9.13
Free Cash Flow (FCF) Per Share (ttm): $5.73
Net Financial Debt: $37080M
Total Assets: $209410 M
Net Financial Debt / Total Assets: 18% (8/12 points)
Net Financial Debt to EBITDA (ttm): 134%
Piotroski Score (1-9) (TTM): (4/9 points)
Profitability Score (25/33 points)
Operating Earnings Yield (ttm): 7.6% (8/15 points)
Net Income (ttm): $12729 M
Gross Profit (ttm): $126510 M
Total Assets: $209410 M
Gross Profitability Ratio = GP / Total Assets: 60% (17/18 points)
Cash Return On Invested Capital (CROIC)(tttm): 15%
Return on Invested Capital (ROIC): 11%
Valuation Score (22/34 points)
Free Cash Flow Yield (ttm): 6.4% (13/17 points)
EV to EBIT (ttm): 16.6
EV to EBITDA (ttm): 10.6 (9/17 points)
Price to Sales Ratio (ttm): 0.6
Price to Book Value (ttm): 3.4
Price to Earnings Ratio (P/E) (ttm): 21
PE 10: 18
TOTAL POINTS – (70/100) (50 is an average score)
Earnings Report: 11/17/17
Next Earnings Report: 2/21/18
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Wal-Mart is the largest retailer in the world and has unparalleled leverage to extract the best terms from its vendors, suppliers, and manufacturers. Volume purchasing power and massive scale provide cost advantages that provide a wide economic moat.
It’s $420 sales per square foot (versus $290 for Target) is evidence of company efficiency. Approximately 60% of sales come from perishables. This drives traffic to the stores and provides a significant advantage over competitors.
Wal-Mart employs over 2.3 million people and is facing intense pressure to raise wages. The real risk is that this trend will continue and/or accelerate; putting a significant dent in future earnings.
In the current competitive global market, Wal-Mart will likely need to sacrifice margins (offer low prices) in order to keep market share.
The company is putting new resources into smaller neighborhood markets and e-commerce. The acquisition of Jet.com demonstrates how serious Wal-Mart is about competing in the new digital age of convenience and service.
Competitors such as Amazon and dollar stores are offering lower prices and convenience. Wal-Mart is front and center when it comes to being a target of labor and labor unions. Higher labor costs are most likely to continue curbing earnings growth for the foreseeable future.
(updated November 2017)
Wal-Mart is ranked #40 (out of 377) overall and #4 (out of 42) in the Consumer Defensive sector by the Dividend Analyzer.
Wal-Mart is a proven leader in its industry. It is reasonably priced and better than average prospects for continued growth and returns to stock holders. WMT should be considered for every dividend portfolio.
Type of Investor / Recommendation
Large Diversified Dividend Portfolios / Should Be Considered
Looking For Exposure to Consumer Defensive Sector / Should Be Considered
Deep Value Investors / Should Be Considered
Portfolio Position Disclosures:
DVB Foundation Portfolio: Long
DVB Dividend Growth Portfolio: None
DVB High Income Portfolio: None
AAAMP Global Value: None
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