WAL-MART STORES INC. $67 (New York symbol WMT; Conservative Growth Dividend Payer Portfolio, Consumer sector; Shares outstanding: 3.1 billion; Market cap: $207.7 billion; Dividend yield: 3.0%; Dividend Sustainability Rating: Highest; www.walmart.com) is the world’s biggest retailer, with 11,633 outlets in 28 countries. These stores serve a total of 260 million customers each week.
The company’s 4,664 locations in the U.S. supply 64% of its overall sales. In 1991, Wal-Mart opened its first store outside of the U.S. through a joint venture with a Mexican retailer. Its international division (24% of total sales) now operates 6,313 stores in 27 countries.
The remaining 12% of the company’s sales comes from its Sam’s Club warehouse stores; they sell a variety of goods at wholesale prices. There are currently 656 Sam’s Club locations in the U.S. and other countries.
42 years of rising dividends
Wal-Mart has increased its annual dividend rate every year since 1974. It last raised its quarterly dividend by 2.0% with the April 2016 payment. Investors receive $0.50 a share, for an annual rate of $2.00. It yields 3.0%.
The company’s sales rose 8.8%, from $446.5 billion in 2012 to $485.7 billion in 2015 (fiscal years end January 31). However, sales fell 0.7% to $482.1 billion in 2016. That’s mainly because the higher U.S. dollar hurt the contribution of Wal-Mart’s international business. Excluding currency rates, sales gained 2.8%.
Earnings rose 9.5%, from $15.5 billion in 2012 to $17.0 billion in 2013. Per-share earnings gained 12.8%, from $4.45 to $5.02, on fewer shares outstanding. The company’s earnings slipped to $16.7 billion in 2014, as it spent more on store upgrades. But earnings per share rose to $5.11 due to fewer shares outstanding.
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Partly due to rising employee health-care costs, WalMart’s earnings fell to $5.07 a share (or a total of $16.4 billion) in 2015, and to $4.57 a share (or $14.7 billion) in 2016.
As part of a new strategic plan, Wal-Mart plans to open fewer new locations in the next two years. Instead, it will spend more on renovating existing stores.
The company has also expanded its e-commerce operations. It recently paid $2.4 billion for U.S.-based shopping website Jet.com. This business sells a variety of products from over 2,400 retailers. Jet’s expertise will also help improve the performance of Wal-Mart’s own web portals.
Chinese e-commerce investment a smart move
In addition, the company has formed an alliance with Chinese online retailer JD.com (Nasdaq symbol JD). Under the terms of the deal, JD.com acquired Yihaodian—WalMart’s shopping website in China. In exchange, Wal-Mart received a 5% stake in JD.com. It has since increased that stake to 10.8%.
The company’s strong balance sheet will support its new strategic plan. As of October 31, 2016, its long-term debt was $42.1 billion, or a moderate 20% of its market cap. It also held cash of $5.9 billion, or $1.93 a share.
For fiscal 2017, Wal-Mart expects to earn between $4.20 and $4.35 a share. The stock trades at an attractive 15.7 times the midpoint of that range. Earnings in 2018 will likely be flat, but should rise about 5% in 2019.
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