Updated April 9, 2021 by Bob Ciura
The Dividend Aristocrats are a select group of 65 companies in the S&P 500 Index with more than 25 consecutive years of dividend increases. We believe the Dividend Aristocrats are some of the best dividend stocks to buy and hold for the long term.
Retail heavyweight Walmart Inc. (WMT) is one of the better-known dividend aristocrats. It is widely known, not only for its strong brand and industry dominance, but also for its long dividend history.
For a full downloadable table of all 65 Dividend Aristocrats, plus some key financial metrics such as price / earnings ratios and dividend yields, click the link below:
Walmart’s first dividend was $ 0.05 per share, which was paid in 1974. Since then, Walmart has increased its dividend every year, and now pays a quarterly dividend of $ 0.55 per share. Walmart has increased its dividend for 48 straight years.
The past few years have been difficult for many retailers. The threat of competition in internet retail led by Amazon (AMZN), as well as the impact of the coronavirus pandemic last year, has had a negative impact on many retailers.
However, Walmart has done very well in recent years by adapting to the changing environment. The company has invested heavily in its own e-commerce platform and the stock has generated strong returns for shareholders. Unlike many other retailers, Walmart has proven to be one of the best-equipped companies to compete with Amazon.
The first Walmart store opened in Rogers, Arkansas, in 1962. It was founded by Sam Walton, who started the company with a simple vision: to offer the lowest prices. This philosophy has resulted in Walmart’s tremendous growth over the years. Walmart went public in 1972. At the time, it had 51 stores and annual sales of $ 78 million.
Today Walmart has annual sales of more than $ 550 billion. The company operates more than 10,000 stores serving nearly 230 million customers worldwide each week.
Source: Investor Presentation
Walmart has also evolved into a multitude of different services, making it a real conglomerate. The Walmart US segment includes retail stores in all 50 US states, Washington DC and Puerto Rico. That includes Walmart’s digital business. Walmart International has offices in 25 countries outside of the United States
After all, Sam’s Club is made up of member-only camp clubs and operates in 48 states in the United States and Puerto Rico.
As mentioned earlier, Walmart has done very well over the past year. Walmart reported fourth quarter and full year earnings on February 18th, 2021. Sales grew an impressive 7.3% to $ 152 billion during the Quarter, driven by ongoing pandemic– –Changes in consumer behavior fueled. total Like-for-like sales rose by 8.5% in the fourth quarter, slightly exceeding expectations. Walmart US, the largest segment, gained 8.6% Sam’s Club posted a staggering 10.8% ex– –Fuel.
revenue by segment is as follows:: Walmart US + 7.9% to USD 100 billion, International + 5.5% to USD 35 billion, Sam’s Club + 8.1% to $ 16.5 billion. Walmart’s US e-commerce sales increased 69% and Sam’s Club e-commerce sales increased 42%. The gross margin remained very low at 23.7% of rEvening but that was 30bps over the year– –before period. The Company said COVID– –The associated costs were $ 1.1 billion in the fourth quarter– –Per– –The stock was $ 1.39 for the fourth quarter.
The company was based on net sales, operating income and Merits– –Per– –Share to decline this year, mainly due to anticipated divestments. Without divestments, Walmart expects a low level– –single digit earnings growth– –Per– –Share. Our initial The estimate is for a profit of $ 5.50– –Per– –Share that would essentially be flat year– –over– –Year.
Walmart also increased its dividend by one cent per share per quarter, rising 1.9% to a new annualized payout of $ 2.20 per share Share. This is also Walmarts 48thThe year in a row that the dividend rises when the status of dividend king is achieved.It also approved a new $ 20 billion share buyback program. We currently predict that Walmart will grow its earnings per share by 5% per year over the next five years.
Competitive advantage and recession performance
The main competitive advantage of Walmart is its enormous size. Thanks to its sales efficiency, Walmart can keep transportation costs down. These savings can be passed on to customers through everyday low prices.
Walmart maintains its brand strength through advertising. Because of its immense financial resources, Walmart can afford to spend billions on advertising every year.
Walmart’s competitive advantage also gives the company steady profitability. This is also true during recessions. The company did phenomenally well during the Great Recession.
During this time, earnings per share rose steadily every year.
- 2007 earnings per share of $ 3.16
- 2008 earnings per share of $ 3.42, up 8.2%
- 2009 earnings per share of $ 3.66, up 7%
- 2010 earnings per share of $ 4.07 (up 11%)
This was a very impressive feat in one of the worst recessions in decades. The company continued to deliver strong results over the past year as the U.S. economy slipped into recession due to the coronavirus pandemic.
Walmart’s growth suggests the company could actually benefit from recessions. As a leader in low-cost retail stores, Walmart may see higher traffic during the economic downturn as consumers decline from higher-priced retailers.
Valuation and expected return
Walmart stock is currently trading at ~ $ 140. Using our estimate of earnings per share of $ 5.50 for the current fiscal year, the stock has a price / earnings ratio of 25.4. This is well above the share’s historical valuation. The current valuation is at a 10-year high.
We currently consider a P / E of 22 to be the fair value for Walmart stock. Investors should also note that retailers have typically not held a P / E ratio above 20. If stocks reverted to our fair value estimate by fiscal 2026, the annual return over that period would decrease by 2.8%.
Walmart stocks have done very well for an extended period of time. While this has rewarded shareholders with strong returns, it makes the stock quite unattractive today. We currently view Walmart as an overvalued stock.
Aside from changes in the P / E multiplier, Walmart should generate returns from earnings growth and dividends. A forecast of the expected returns can be found below:
- Earnings per share grow by 5.0%
- 1.6% dividend yield
- -2.8% multiple reversals
In this scenario, Walmart is projected to generate a total return of only 3.8% per year over the next five years. Walmart stocks are significantly overvalued compared to their history, and we believe this will weigh on future returns on the stock.
While many retailers have struggled to adapt to changing retail buying habits, we believe Walmart has made the right strategic investments. The company’s impressive e-commerce growth reflects this view.
The company has done well and the stock has outperformed the S&P 500 index over the past five years. We think the company’s dividend record is impressive, even if its recent dividend hikes have been on the small side.
However, sometimes a great company can be a bad investment if a stock is overvalued. We believe this is the case at Walmart today. Despite the strong business model and growth potential, the stock appears to be significantly overvalued.
The continued surge in the share price has absorbed much of the stock’s total potential return, meaning the next five years will result in poor returns for shareholders. We encourage investors looking to buy Walmart stock after a significant pullback.
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