Wal-Mart Stores, Inc.: Why Income Investors Should Consider WMT Stock
December 23, 2016
WMT Stock Has a Long History of Rewarding Shareholders
Wal-Mart Stores, Inc. (NYSE:WMT) stock is a dividend growth stock that income investors should consider owning.
WMT stock first declared paying a dividend in March of 1974, and it has been a dividend growth stock since. In fact, this year marks the 41st year that the dividend has seen an increase.
The dividend is paid quarterly and reviewed annually following the sale generation of the holiday season, the company’s busiest time of the year.
The current dividend for WMT stock is $0.50 per share, while the payout ratio is approximately 43%. Based on these numbers, a 42nd straight year of dividend hikes is possible. The shares are yielding 2.87% at this time and trading at $69.68.
Walmart has also been engaged in share buybacks. As of the third quarter earnings report in November, $1.4 billion worth of shares have been repurchased. Even though share repurchases do not provide more money to shareholders, they do increase their overall net worth. That’s because share buybacks result in fewer outstanding shares, meaning shares become worth a larger percentage of the business. (Source: “Walmart reports Q3 FY17 EPS of $0.98,” Wal-Mart Stores, Inc., November 17, 2016.)
Future Growth Opportunities
It’s no secret that the retailing sector is one of the hardest to operate a business in. This is because there is a lot of change occurring, as well as low barriers to entry. The change been best seen in the recent popularity of companies in the retail segment that have no physical locations, most notably Amazon.com, Inc. (NASDAQ:AMZN).
This is the trend that the industry is moving towards, and Walmart, the largest brick-and-mortar retailer, hasn’t failed to notice. The company is aware that it needs a larger online presence to complete with Amazon and other e-commerce businesses and has invested into its own online platform.
Another recent move to expand Walmart’s online footprint is the acquisition of Amazon competitor Jet.com, Inc. for $3.0 billion. Jet.com sells everyday products such as healthcare goods, laundry products, and food. This move gives customers additional platforms through which to purchase goods, as well as helps existing customers stay loyal to the brand. (Source: “Walmart Completes Acquisition of Jet.com, Inc.,” Wal-Mart Stores, Inc., September 19, 2016.)
Final Thoughts on WMT Stock
Over the past year, shares of WMT stock are up 13%, but still trading cheap based on the valuation. The current price-to-earnings (P/E) ratio is 15.02 times, which is approximately a 40% discount when compared to the S&P 500, which has a P/E ratio of 26.02 times.
For patient, long-term income investors, WMT stock is one to consider owning. The long history of increasing the payout to shareholders and the integration of online means Walmart knows what it is doing.
