Wal-Mart Stores, Inc. (WMT), Target Corporation (TGT): What Department Stores Should Investors Buy?

Wal-Mart Stores, Inc. (NYSE:WMT) is trading at around $76 per share, with the total market capitalization of $250.70 billion. Wal-Mart is priced higher than Macy’s at 8.10 times EV/EBITDA. Wal-Mart has consistently increased its dividend, from $0.36 in 2003 to $1.59 in 2012. At the current trading price, Wal-Mart offers its shareholders dividend yield at 2.5%.

Target Corporation (NYSE:TGT), in the first quarter, experienced the decline in both revenue and income. Total revenue was $16.7 billion, lower than $16.87 billion in the first quarter last year.

Its net income came in at only $498 million, or $0.77 per share, worse than the net income of $697 million, or $1.04 per share in Q1 2012. In the recent first quarter, Target Corporation (NYSE:TGT) repurchased around 8.5 million shares at around $64.04 per share, with the total transaction value of $547 million. It also paid out $232 million in dividends.

For the full year, Target Corporation (NYSE:TGT) is expected to earn around $4.12 to $4.32 per share. Target Corporation (NYSE:TGT) is trading around $71.50 per share, with a total market cap of $45.9 billion. Target has a lower EV multiple than Wal-Mart but its EV multiple is higher than Macy’s, at 7.46. It also pays dividends with a lower yield than Wal-Mart at 2.1%. Macy’s offers a similar dividend yield at 2.1%.

My Foolish take

Macy’s payout ratio is the lowest of the trio, at only 24% while the payout ratios of Wal-Mart and Target are 33% and 32%, respectively. Among the three big companies, I like Macy’s the most due to the low payout ratio, impressive first quarter earnings growth and low valuation.

Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article What Department Stores Should Investors Buy? originally appeared on Fool.com is written by Anh HOANG.

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