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Wal-Mart Stores Inc. (WMT)

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Founded by Sam Walton in 1962 and headquartered in Bentonville, Arkansas, Wal-Mart Stores Inc. (WMT) is a multinational retailer engaged in the operation of discount department stores, wholesale and other units in various formats around the world. The Company's operations are conducted in three segments: Wal-Mart U.S., Wal-Mart International and Sam's Club. It is considered a defensive stock, because it provides a constant dividend and stable earnings, regardless of the state of the overall stock market, because of the constant demand for its products. As a defensive stock, it tends to remain stable during the various phases of the business cycle, and tends to perform better than the broader market during recessions. Its current total market capitalization of $321.8 billion makes WMT a mega capitalization stock (a mega-cap stock has a market capitalization value of more than $100 billion) and it is considered a solid and diversified business with a wide economic moat and sustainable competitive advantage over its rivals, which also enjoys a solid corporate culture. According to Yahoo! Finance, consensus estimates call for the company to earn about $5.11 per share this year, up from $4.93 per share last year, and to go to about $5.45 per share next year.

 

Walmart has paid dividends to investors since 1973, and has increased its payments for 45 consecutive years, which makes it a dividend aristocrat (the dividend aristocrats are companies within the S&P 500® index that have raised their dividends for at least 25 consecutive years). During the past five years, it has increased its dividends at an average rate of 2.0%, with its quarterly payment of 54 cents currently providing a yield of 1.90%. The value of dividends reinvestment: A hypothetical investment in Walmart has grown cumulatively (including dividends reinvested) 152,272% during the past forty years. The same investment has grown only 96,845% during the same period of time, excluding dividends. During the same period, a hypothetical investment in the S&P 500® index (thru the Vanguard 500 Index Admiral (VFIAX) has grown cumulatively 6,780%, including dividends reinvested. The stock exhibits a healthy Dividend Payout Ratio (DPR is the proportion of earnings paid out as dividends to shareholders) of 41%, which means the company is paying out only 41% of all its net income in dividends, and is retaining a good percentage of its earnings to reinvest or grow the business. Its average DPR during the past five years is 57%. Its current Price to Earnings ratio (P/E --a measure of valuation) of 21.89 is 1.8% below the US Market Index. Its Price to Sales ratio (P/Sales) of 0.52 is 77.4% below the US Market index, and its Price to Cash Flow of 12.9 is 9.4% below the index. Technically (from the chart’s perspective) WMT also looks attractive, trading 10.3% below its record high, while it is forming a price consolidation pattern between $102 and $128 approximately, in which $102 is acting as a technical support level.

 

The index funds Vanguard Total Stock Market Index and Vanguard 500 Index are major shareholders of WMT, holding 1.43% and 1.01% of its shares respectively. Walmart’s main competitors are Costco Wholesale Corp. (COST) and BJ’s Wholesale Club Inc. (BJ). Volatility and risks: WMT’s five-year Beta (a measure of the volatility, or systematic risk in comparison to the market as a whole as evidenced by the S&P 500® Index) is 0.29, so the stock is 71% less volatile than the Market. Best and worst years during the past 40 years: Its best year was 1982, in which WMT returned, excluding dividends, 134.71%. On the flip side, its worst year was 2015, when the stock declined 28.62% excluding dividends. Its dividend re-investment plan charges some fees for cash investing ($5 plus 5 cents per share), but the plan charges no fee for dividend re-investment. To illustrate those fees: for example, a $100 investment at WMT’s current price would cost a fee of $5.05 (or 5.05% of the investment).

 

To minimize the effect of even such small fees, you may want to invest a larger amount but less frequently. The fee for a $300 investment, for instance, would be $5.15 (or 1.72% of the investment). With the stock being fundamental and technically attractive, this company is an appropriate holding for investors who wish to build a holding over the long term. Disclosure: Mario Medina has no position in Walmart Inc. (WMT), and has no plans to initiate any position in the immediate future.

 

The author wrote the article himself and it expresses his own opinions. The author has no business relationship with WMT and this article is not intended as a recommendation to invest as the information published does not take into account any subscriber's personal finances, goals or risk tolerance. Past results illustrated in the article are for reference and educational purpose only and do not guarantee future performance. Accordingly, you should be aware of all the risks associated with any financial investment and should consult an independent financial advisor for any personal investment advice.