WAL-MART STORES INC. $84 (New York symbol WMT; Conservative Growth Portfolio: Consumer sector; Shares outstanding: 3.2 billion; Market cap: $268.8 billion; Price-to-sales ratio: 0.6; Dividend yield: 2.3%; TSINetwork Rating: Above Average; www.walmart.com) gets about 60% of its sales from its 4,516 stores in the U.S., including 3,407 supercentres, which sell both groceries and general merchandise. Groceries now supply 56% of Wal-Mart’s U.S. sales.

In 1991, the company opened its first store outside of the U.S. through a joint venture with a Mexican retailer. Its international division (29% of total sales) now operates 6,290 stores in 26 countries.

The remaining 11% of Wal-Mart’s sales comes from its Sam’s Club warehouse stores. The company charges customers a $45 annual membership fee to shop at these stores, which sell a variety of goods at wholesale prices. There are currently 647 Sam’s Club stores in the U.S. and other countries.

The company’s sales rose 15.1%, from $421.8 billion in 2011 to $485.7 billion in 2015 (fiscal years end January 31).

In the latest year, sales rose 3.1% at Wal-Mart’s U.S. stores and 1.5% at Sam’s Club. That offset a 0.3% drop at the international locations. However, if you disregard the negative impact of the high U.S. dollar, international sales rose 3.6%.

Earnings gained 13.9%, from $14.9 billion in 2011 to $17.0 billion in 2013. Per-share earnings jumped 23.3%, from $4.07 to $5.02, on fewer shares outstanding. Wal-Mart’s 2014 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.

In fiscal 2015, higher health care costs cut Wal- Mart’s earnings to $16.2 billion, or $4.99 a share. If you exclude unusual items, such as costs to close some stores in Japan, it earned $5.07 a share.

Big growth online

Wal-Mart continues to spend heavily on its Internet businesses. In the past two years, it has increased the number of products it offers online in the U.S. by 200%. As a result, its online sales have jumped from $1.6 billion in fiscal 2005 to $12.2 billion in 2015.

Wal-Mart’s websites continue to lose money, but it keeps its costs down by using its own distribution networks and letting online shoppers pick up their orders at a local store. This also gives the company an advantage over other online sellers, like Amazon.com, which must build their own warehouses.

The company is now testing selling fresh groceries online in certain markets. Unlike competing services, which force customers to wait at home for a delivery truck, Wal-Mart is giving customers the option of driving to a local store, where employees will load the groceries into their car. That lets them avoid delivery fees and schedule pickups for when it’s most convenient.

In the current year, Wal-Mart expects to invest $1.2 billion to $1.5 billion in its Internet business.

A big part of this spending will go to improving its ability to serve customers who order goods on smartphones. Nearly 70% of Wal-Mart’s online traffic during the Christmas season came from mobile devices.

Smaller stores look like a hit

Meanwhile, the company continues to build more of its Neighborhood Market stores, which are about 60% smaller than its typical discount store.

The company opened 233 Neighborhood Market locations in fiscal 2015 and now has a total of 599. In the most recent quarter, same-store sales rose 7.7% at these stores, compared to just 1.5% for its full-sized outlets. Wal-Mart plans to open 180 to 200 more of these stores this year.

Wal-Mart’s strong balance sheet will easily support these investments. As of January 31, 2015, its longterm debt was $41.1 billion, or a low 15% of its market cap. It also holds cash of $9.1 billion, or $2.83 a share.

The company now plans to increase its U.S. workers’ pay to $10.00 an hour, which is well above the current federal minimum wage of $7.25. This will add $1 billion to its annual expenses, but it should improve the company’s public image and cut down on employee turnover.

The higher labour costs will lower Wal-Mart’s fiscal 2016 earnings to between $4.70 and $5.05 a share. The stock trades at a still-reasonable 17.2 times the midpoint of that range.

42 years of dividend hikes

The company has also increased its quarterly dividend by 2.1%, to $0.49 a share from $0.48. The new annual rate of $1.96 yields 2.3%. Wal-Mart has now raised its dividend each year for the past 42 years.

Wal-Mart is a buy.