Today, I’ll be looking at a favorite company of dividend growth investors: Wal-Mart Stores, Inc. (NYSE:WMT). This dividend champion has been increasing dividends for 39 consecutive years. This is an impressive streak, but this is just one of its appealing dividend fundamentals. Let’s check out the others.
10-year stock chart
The 10-year returns haven’t been that good as the average annual return was 4.5% (3.3% from capital gains and 1.2% from dividends).
The chart looks mostly flat until its recent spike. Wal-Mart Stores, Inc. (NYSE:WMT) looks to be a culprit of the lost decade.
Revenue and earnings
Wal-Mart has been making more and more money each year. This is exactly the kind of chart I like to see.
The same steady trend emerges when revenue per share and EPS are examined.
While Wal-Mart Stores, Inc. (NYSE:WMT) has very impressive revenue charts, the average annual growth rates are not quite where I’d want them. Typically I like to see growth rates above 8%, but revenue and net income are slightly below these levels.
While revenue and net income growth isn’t quite where I’d want it, the consistency of Wal-Mart’s earnings growth is superb.
Wal-Mart Stores, Inc. (NYSE:WMT) is a dividend champion and has increased its dividend for 39 consecutive years in a row. Its most recent increase occurred with the dividend recorded in December 2012, when it increased the quarterly dividend by 18.2%.
As you can see from the table below, Wal-Mart Stores, Inc. (NYSE:WMT) shows good average annual dividend growth rates.
With the most recent dividend increase of 18.2%, it looks like it plans on continuing high levels of dividend growth. Now, let’s see if the dividend is sustainable.
The 10-year average annual dividend growth has been significantly higher than EPS growth, which suggests that eventually dividend growth should slow down.
Let’s take a look at the payout ratio to see how much room for growth the dividend still has.
The company has been increasing dividends faster than earnings, but because they have a reasonable payout ratio, the dividend is sustainable. The payout ratio has been steadily increasing and I expect this trend to continue for a while as there is still plenty of room for further increases.
Estimated future dividend growth
Analysts expect annual EPS growth to be 9.29% for the next five years. I think dividend growth will be slightly above these levels as this would be consistent with the past and the payout ratio is low enough to allow it. My guess is that annual dividend growth will be 10% to 15%.
Competitive advantage & return on equity (ROE)
I would consider Wal-Mart Stores, Inc. (NYSE:WMT) to have a wide moat over the competition and the ROE chart would support this as Wal-Mart has a consistently good ROE.
ROE is slightly above the industry average for department stores and about 6 percentage points higher than both Target Corporation (NYSE:TGT) and Costco Wholesale Corporation (NASDAQ:COST), which are major competitors.
Debt & liquidity
I want to invest in companies that are fiscally responsible, so it’s important to look at debt levels and see that they are at reasonable levels.
Fitch currently rates its debt at AA levels, and these ratios haven’t changed much over the past decade, so debt and liquidity levels are fine.