Wal-Mart (WMT) Dividend Stock Analysis

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Description

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.

The Numbers

(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.

Price: $79.84

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.

SWOT Analysis

Strengths

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.

Weaknesses

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.

Opportunities

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.

Threats

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.

Conclusion

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.

Disclosures:

Positions:  AAAMP –  None          ADIVP –  Yes (Long)

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The Arbor Dividend Portfolio (ADIVP)

The ADIVP is an active, real time portfolio (part of my retirement plan) that concentrates on high quality dividend stocks. The ADIVP is different from most model portfolios for two reasons. It uses asset allocation to lower volatility; and puts a heavy emphasis on valuation and margin of safety when making individual investments.

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Disclaimer

While Arbor Investment Planner has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.

This article was originally published on ArborInvestmentPlanner.com at the following link … Wal-Mart (WMT) Dividend Stock Analysis

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