Dividend Aristocrats

Walmart Stock, a 46 Year Dividend Aristocrat

Walmart Stock is a member of the prestigious S&P 500 Dividend Aristocrats, having raised its dividends for 46 years in a row.

Dividend Aristocrats are stocks that have raised dividends non-stop for at least 25 years, have a minimum $3 billion market capitalization and are included in the S&P 500 index.

Walmart Stock last raised its dividend from 52 cents a share to 53 cents on March 15th, 2019.

While famous retailers like Payless Shoe source, Gap, Family Dollar and Sears are closing stores or going completely out of business, Walmart continues to thrive.

This is thanks to its everyday low prices strategy, grocery pick up, eCommerce growth and a strong US jobs market. We will delve in to each of these topics in this article.

In this article, we review Walmart’s financial results as of 3rd Quarter 2019, dividend growth history, and compare its valuation and performance to that of the S&P 500 index.

Table of Contents

This article is broken down in to sections, feel free to jump to the area that interests you.

Business Synopsis

Founded in 1945 by Sam Walton, Walmart is a discount retailer whose mission is to offer quality merchandise at everyday low prices. The chain operates 11,300 stores and serves 275 million customers each week.

Employing 2.2 million people around the world, Walmart conducts its operations under 3 segments:

  1. Walmart US
  2. Walmart International
  3. Sam’s Club.

Walmart US represents 65% of total sales, generating $331.7 billion for fiscal year 2019.

Walmart International made up 24% of total sales in 2019, totaling $120.8 billion. The international segment conducts operations in 26 countries including Canada, China, Brazil, India and UK.

The last segment is Sam’s Club that operates membership warehouses in 44 States and Puerto Rico. Sam’s Club makes up 11% of total sales at $57.8 billion in 2019.

The warehouses operate like Costco which charges a membership fee. As a result, a large portion of this segment’s operating income is derived from membership fees.

Walmart Revenues by Segment

Screenshot above displays a summary of Walmart’s revenues by each segment. 65% of total revenues is derived in the United States while 11% is Sam’s Club. Walmart International earns 24% of total revenues, leaving room for huge growth opportunities.

Over 55% of Walmart’s sales is in the Grocery division offering products like meat, produce, deli and bakery, consumables like baby and healthcare products, pet supplies, beauty aids, etc.

33% of sales is made up of general merchandise like electronics, photo processing, apparel, home furnishings, hardware and paint, automotive goods, etc.

Revenue Analysis & Share Buybacks

For full year 2019, Walmart generated $514.41 billion in sales and earned a net income of $6.67 billion, implying a 1.3% net profit margin. Revenue grew 2.8% year over year from 2017’s total of $500.34 billion.

Over the last decade, Walmart has grown its revenues from $408.1 billion in 2010 to $514.41 billion in 2019. This is a 2.34% compounded annual growth rate over the last 10 years. For a company the size of Walmart, this level of growth is quite healthy.

Trading on the New York Stock Exchange, Walmart has a market capitalization of $328.83 billion as of January 2020 and pays a dividend yield of 1.83%. This is in line with the dividend payout from the S&P 500 index.

OmniChannel eCommerce Strategy

Management believes stores are an important part of the company’s future as they leverage physical space to grow online grocery pickup and fulfill eCommerce orders. This is known as the “OmniChannel” strategy.

As a result, over the last few years, Walmart has been investing dearly in building out its eCommerce operations by acquiring Jet.com. Jet.com is an online seller of groceries, clothes and electronics.

Below is a video of Walmart Ecommerce CEO Mark Lore who explains the company’s vision for eCommerce. He is the co-founder of Jet.com which Walmart acquired for $3.3 billion.

He explains how 4700 Walmart stores are within 5 miles of all US residents and near 90% of the population. Free grocery pick up is a huge driver for Walmart’s eCommerce ambitions and he quotes the Walmart stores as “hybrid warehouses.”

Mark explains how Amazon cannot crack fresh food business as well as Walmart does because fresh food cannot be “shipped” and delivered within 2 days, it has to be refrigerated and picked up in store via the company’s free grocery pickup.

Using Jet’s technology, Walmart now allows customers to order groceries online and pick them up in store, thus leveraging physical retail space as storage warehouses. The company offers grocery pick up at more than 2100 Walmart locations in the US and delivers from 800 locations.

Walmart US Comparable Sales

These efforts are paying off as eCommerce sales increased by 36% year over year as of the first half of 2019. The attached picture shows Walmart associates loading groceries in a customer’s trunk without having to go in store and standing in check out lines.

Attached is a screenshot of Walmart’s ecosystem or management’s vision for the future. Management has made various growth acquisitions over the last few years.

#1 Acquired HayNeedle.com, an online seller of furnishings and decor in 2016 with annual revenues surpassing $500 million in 2016.

#2 Bought Shoes.com, an online footwear retailer in 2016 for $70 million.

#3 Invested $500 million in online grocery delivery company in China named as JD.com.

#4 Made a monster acquisition of Flipkart.com for $16 billion. Flipkart is an Indian eCommerce company in May 2018. FlipKart is essentially the “Amazon of India” gaining 39.5% market share of India’s eCommerce industry.

#5 Acquired Bare Necessities, a retailer of intimate products like sleepwear, bras, swimwear, etc.

#6 Bought Lord & Taylor, an online fashion retailer that sells 125 fashion brands on Walmart’s website. As of April 2018, Lord & Taylor’s website received 2.2 million unique visitors monthly.

Walmart Ecosystem

Growth Outlook

In 3rd Quarter, 2019 earnings results, Walmart generated $126.98 billion in net sales and earned $4.72 billion in operating income. This was a 2.5% growth in sales year over year. Net sales on a constant currency basis fared better growing 3.3% year over year.

For fiscal 2020, Walmart expects a 3% net sales growth, 2.5% to 3% comparable sales growth in the US and 35% eCommerce growth as it acquires more specialty online retailers.

Walmart 2020 Guidance

Thanks to the digitization efforts mentioned above, Walmart has been able to grow its comparable sales year over year to between 3% to 4% in 2019, up from 0.5% to 2% in 2016 and 2017.

Walmart Comparable Sales 2019

Dividend Growth History

Walmart is a member of the S&P 500 Dividend Aristocrats Index, having raised its dividends for the last 46 years, without missing a single year. This is truly a remarkable achievement for a business that is run on razor thin margins, and has to compete against online sellers like Amazon that do not have real estate costs like Walmart does.

Management has grown its dividend from 3 and ½ cents per share in 1990 to $2.12 per share in 2019. This represents a compounded annual growth rate of 14.66% over the last 30 years, which is exquisite.

Attached is a chart showing Walmart Stock’s parabolic dividend growth with a steep uptrend.

Walmart Dividend Growth History

Below is another chart that shows year over year growth in Walmart Stock’s dividend. It is evidently clear from this chart that Walmart has slowed its growth of dividend payout since 2014 due to the threat from Amazon’s meteoric rise.

As the company invests heavily in acquiring online specialty retailers and grow its eCommerce operations, there is less cash available to grow dividends.

Walmart Dividend Growth Year over Year

Dividend Payout Ratio

Lets examine the the dividend payout ratio for Walmart Stock. Dividend Payout Ratio measures how much of a company’s free cash flow is paid out in the form of dividends.

Free cash flow is the cash a company generates from its daily operating activities minus capital expenditures like investing in new plants or equipment.

Free cash flow is calculated from the statement of cash flows, and is not artificially modified using accounting rules or non-cash expenses like depreciation, amortization, fair value revaluations, etc.

In its 2019 annual report, the company states cash from operations equals $27.75 billion while capital expenses totaled $10.34 billion.

Free Cash Flow = Cash from Operations – Capital Expenditures

= $27.75 billion – $10.34 billion

Free Cash Flow = $17.41 billion

Dividends Paid in 2019 = $6.1 billion

Dividend Payout Ratio = Total Dividends Paid / Free Cash Flow

= $6.1 billion / $17.41 billion

Dividend Payout Ratio = 35%

35% is a very low dividend payout ratio for Walmart which means the company is keeping more of its earnings to fuel its growth; a very positive thing for Walmart Stock. Low dividend payout ratio also means Walmart can keep increasing its dividends for many years in to the future, as well as invest in eCommerce business to keep Amazon in check.

Valuation and Stock Performance

Below is a long term monthly chart of Walmart Stock. It has appreciated from as low as $5 in January 1990 to $115 as of January 2020. This represents a stunning 11% compounded annual growth rate (CAGR) over 30 years.

During the great financial crisis of 2008, Walmart Stock fared better than the S&P 500 and only dropped 25% versus a 56% drop for the S&P 500. This proves during recessionary times, Walmart Stock holds up better than the overall market because people will not stop shopping for groceries and toilet paper.

Walmart Stock Long Term Monthly Chart

Walmart Stock is in red line and S&P 500 is in blue. Over the last decade, Walmart Stock has essentially under performed the S&P 500 and only started catching up in the latter half of 2019.

Walmart Stock Performance vs S&P 500

Analysts are expecting Walmart to earn $4.99 per share in 2020. Based on closing price of $115 as of January 2020, the stock is trading at 23 times forward earnings as measured by price to earnings ratio. In comparison, the S&P 500 is trading at 18.5 times forward earnings.

This means Walmart Stock is priced for perfection and very expensive; we would not be buying at these levels. However, a general market correction of 10% would present an attractive buying opportunity for long term investors.

Executive Summary

Here is what we like and don’t like about Walmart Stock.

Likes

  • Consistent dividend growth for 46 years, making this a Dividend Aristocrat.
  • Low dividend payout ratio of just 35%, leaving lots of room for future dividend raises, capital acquisitions and growth opportunities internationally.
  • Grocery business is very hard for Amazon to crack due to requirement of fresh and healthy food. 55% of Walmart’s sales are in this segment and management is leveraging huge physical presence in the United States to allows customer grocery pickup.

Dislikes

  • Dividend growth rate of just 2% annually over the last 5 years.
  • A valuation premium to the S&P 500. Trades at 23 times forward earnings while the S&P 500 trades at 18.5 times.
Market Capitalization $328.83 Billion
Dividend Yield 1.83%
Forward PE Ratio 23 times earnings
Dividend Growth (5 Year Avg.) 2%
Dividend Payout Ratio 35%
Revenue Growth (5 Year Avg.) 1.55%
2018 Revenues $514.41 Billion
Gross Margin 25.2%
Net Margin 2.6%

Dividend History & Ex-Dividend Dates for Walmart Stock

Record Dates Payable Dates Amount Type
March 15, 2019 April 1, 2019 $0.53 Regular Cash
May 10, 2019 June 3, 2019 $0.53 Regular Cash
Aug. 9, 2019 Sept. 3, 2019 $0.53 Regular Cash
Dec. 6, 2019 Jan. 2, 2020 $0.53 Regular Cash
March 9, 2018 April 2, 2018 $0.52 Regular Cash
May 11, 2018 June 4, 2018 $0.52 Regular Cash
Aug. 10, 2018 Sept. 4, 2018 $0.52 Regular Cash
Dec. 7, 2018 Jan. 2, 2019 $0.52 Regular Cash

Source: Walmart Investor Relations

Walmart Stock Price

Current Walmart Stock Price can be viewed by visiting the company’s Investor Relations page and clicking Stock Information.

 

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