Sector: Consumer Defensive
Industry: Discount Stores
Wal-Mart Stores Inc operates over 11,000 discount retail stores that serve over 270 million customers a week in 27 different countries. Its operations comprise of three reportable business segments, Walmart U.S., Walmart International, and Sam’s Club.
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 brands and private brand options to provide consumers with choices and keep prices as low as possible.
(last updated on 4/26/2015)
Stock has paid a dividend since 1974 and increased its dividend for 42 consecutive years; qualifying the company as a Dividend Aristocrat and Dividend Champion.
Current Dividend: $1.96
Market Capitalization: $258 Billion
Enterprise Value: $298 Billion
29 Point Quantitative and Qualitative Checklist:
Dividends (3/3 points)
Dividend Yield = > 2.0% (2.5%)
Payout Ratio = < 60% (41%)
10 Year Dividend Per Share *CAGR > **4.14% (14.0%)
Balance Sheet (2/3 points)
Debt to Equity Ratio = < 60% (58%)
Total Liabilities to Assets Ratio = < 75% (60%)
Current Ratio > 1.5 (0.97)
Income Statement (2/2 points)
10 Year Earnings Per Share (EPS) CAGR > 4.14% (7.7%)
10 Year Revenue CAGR > 4.14% (5.5%)
Cash Flow Statement (1/1 point)
10 Year Cash From Operations CAGR > 4.14% (6.6%)
Profitability (6/6 points)
Operating Margin > 5.0% (5.6%)
Operating Earnings Yield > 8.0% (10.5%)
Gross Profit to Total Assets > 15% (59%)
Return on Invested Capital (ROIC) 10 year Median > 12% (12.8%)
Return on Equity (ROE) 10 Year Median > 12% (21.9%)
Free Cash Flow to Assets > 0 (8.0%)
Valuation (4/5 points)
Enterprise Value Multiple (EV to EBIT) = < 15.0 (11.0)
EV to Cash From Operations (CFO) = < 15.0 (11.1)
EV to EBITDA = < 12.0 (8.2)
PE10 < 25 (20.7)
Stock Price ($79.84 )< Graham Number ($53.53)
Piotroski F-Score: (8/9 points)
Total Points: (26/29)
*Compound Annual Growth Rate (CAGR)
**A Compound Annual Growth Rate of 4.14% = a 50% gain over 10 years.
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.
Wal-Mart employs over 2.1 million people and is facing intense pressure to raise wages. The company is making an attempt to address this issue by raising the wages of approximately 500,000 U.S. employees to a minimum of $10/hour. This alone will reduce 2016 earnings by about .20 cents per share. The real risk is that this trend will continue and/or accelerate, putting a significant dent in future earnings.
The company is putting new resources into e-commerce and smaller neighborhood markets. By investing less in brick and mortar, Wal-Mart hopes they will appeal to customers with convenience and low prices, but improve company margins.
Competitors such as dollar stores and online sites 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 going to reduce earnings.
Wal-Mart is a proven leader in its industry. It is reasonably priced and at least average prospects for continued growth and returns to stock holders. It deserves consideration for any long term dividend growth portfolio.
Positions: AAAMP – None ADIVP – Yes (Long)
The Arbor Dividend Portfolio (ADIVP)
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This article was originally published on ArborInvestmentPlanner.com at the following link … Wal-Mart (WMT) Dividend Stock Analysis