Dividend King – Walmart

When it comes to retail companies, Walmart (stock symbol WMT) is up there with the world’s biggest and best-known. With a market capitalization of around $382 billion at the time of writing, it is second only in size to Amazon, and some way ahead of the third largest retailer ─ Home Depot, valued at less than $300 billion.

Business Overview

Operating through three segments with around 10,500 units across 24 countries, Walmart encompasses both bricks-and-mortar operations (such as supercenters, supermarkets, hypermarkets, warehouse clubs, and cash and carry stores) and eCommerce websites (including walmart.com, flipkart.com, and samsclub.com).

Walmart supplies its customer with almost everything – From groceries and consumables to beauty and cosmetics to health and wellness products to pharmaceuticals, home improvement, white goods, and everything in between. And Walmart operations even include gas for your tank, as well as small banking services.

Financial Performance

Walmart has delivered almost unbroken growth in revenues over the last 10 years. Even in 2020, at the height of Covid-19, its revenues grew from the year before. Over the period, revenues have increased by more than 30%, and the trailing 12-month (TTM) curve has remained in a solid, if not outstanding, climb.

Walmart’s earnings per share (EPS) have increased from $4.47 in the full year 2011 to $4.87 in 2022: an increase of only 9% compared to revenue growth of more than 30%. However, this is in part due to Walmart’s policy of reinvestment in the business and offering improved value to consumers through lower margins.

Looking forward, the average estimate of 35 analysts for EPS in 2023 is $5.88, with a further rise to $6.58 in 2024.

Dividend Profile

Walmart’s business strategy has helped deliver an exceptional history of dividend payment and share price growth. Over the past 10 years, Walmart has been growing its dividends at a CAGR of 5.97%, rising from $1.21 per share to $2.16 today. The share price has also doubled from $72.77 to $140 today – A total return of about 149% in 10 years.

It is expected that the full-year dividend will increase again next year based on the company’s forecasted increase in EPS. And when that happens, it would represent 49 years of continual annual dividend growth since 1974.

Walmart clearly believes in rewarding shareholders with its dividends. While it has grown its business through strategic business acquisitions and investments, it has maintained a high payout ratio over the years. Its current 12-month payout ratio of 44.3% is among the highest in the sector.

With cash flow of around $46 billion for the 12 months ending July 31, 2022, and a forward dividend cover of around 2.6x, Walmart’s ability to continue increasing its dividend payout looks secure.

Business Risk

Risks to Walmart’s business can be categorized across several factors:

Political: Walmart operates in many countries, and the policies of individual governments can affect its operations. Governments can pass laws and regulations that affect revenues and profits – such as increases in minimum wages or prohibition of the sale of certain products.

Cultural: Like other global companies, Walmart must market to its worldwide audiences and to different cultures. As an example, it lost more than $1 billion by not understanding the German audience. Its increased focus on eCommerce may help it to overcome such issues, though it still has some way to go to catch up with Amazon.

Technological: As the world automates, Walmart is doing so, too. We would expect Walmart to increase its use of digital and robotic tools, but this also means it must be innovative with no guarantees of success.

Final Thoughts

Walmart’s dividend yield, at 1.60%, is only a fraction shy of the dividend yield on the S&P 500 (1.82%).

While there are certain business risks to be considered when investing in Walmart, Walmart’s performance has been pretty consistent. It has a global presence across diversified retail business lines, as well as a management that appears to be committed to increasing the dividend for its shareholders. Should we enter into a recession, Walmart should be well-positioned to weather the storm.

Loved this? Spread the word