Thursday, January 20, 2011

Walmart Stock Analysis

Walmart (WMT) has paid dividends for 36+ years.  Walmart is one of the large and mighty powerful Dividend Aristocrats, meaning they have paid dividends and increased them for over 25 years.  A great stock if you ask me to have in your portfolio!  

Their price: as of January 20th 2011 (before the market has opened) the price is at $55.03. Their 52 week high is $56.27, giving just a 2.2% appreciation on the pricing giving its most recent high. Their low is $47.77 over the prior 52 weeks. Therefore, it is verrry close to the 52 week high.  Since they are extremely close to that 52 week high, I would personally like to see them drop a dollar or two.  However, since their track record shows, a dividend increase/raise for 25+ years hints to me that Walmart isn't a bad buy at anytime.  That is just my perspective, simply because I invest for cash flow from these companies : ) 

Price to Earnings Ratio: Walmart currently has a current 13.7 P/E ratio (According to Google Finance), which of course is a tad below the S&P average and according to Morning star is below the 14.8 P/E for the industry average. Therefore, Walmart's stock is relatively cheap to its earnings and is currently undervalued against the average of both the industry and S&P index.

Dividend Yield: Let us talk about their cash flow back to investors!  Their current dividend yield when trading at $55.03 is 2.20%.  I know what you all are thinking - THIS IS THE LOWEST out of all my analysis' that I have completed thus far.  However, it is STILL above the average of the S&P 500 and again - it is a Dividend Aristocrat, giving a pay/dividend raise for 25+ years.  Now if their price went down to say, $52 for example - their yield would be 2.32%, a little higher and a little cheaper.  Here is why this dividend yield doesn't turn my face away -  their dividend yield growth rate is an incredible 24.36% according to my analysis since 1974.   A 24.36% raise on average.  That is extremely high and definitely keeps their shareholders happy.  

Payout Ratio: Their dividend is $1.21 per year and their EPS is $4.02. Therefore, 1.21/4.02 = 30%, just below my 40-60% range that I like.  What this means is that they tend to retain most of their earnings, to help grow their company, expand their stores and market and possible acquire other companies. As an investor, 30% payout isn't too bad, though I would like to see them provide back more of their earnings to their shareholders.  

Conclusion: Walmart is an extremely sound company to add to your portfolio.  Given it's current price, I would like to see it maybe 2-3 dollars cheaper, but then again - that dividend growth rate on average of over 24% is amazing and the fact that they are an aristocrat with a proven track record of dividend increases is a plus.  The reason I like that is because even during a recession (which we just had) they still increase their dividends.  I also ask myself this - is Walmart going anywhere?  Most likely not, therefore this is a stock to hold for an extremely long-term in my perspective.  Thank you for reading this brief analysis, good luck and take care.  

-Lanny B.

Disclosure: I do not hold nor recommend anything. This is actual data, analysis, however I base no investor recommendation. However, I personally would add/start a position on this firm, however my direction is different from anyone else's. Thank you for your understanding.

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