Wal-Mart Stores, Inc. (WMT): Five Reasons This Retailer Looks Poised to Outperform

Valuation, cash, and dividends

One way to compare companies is something I call free cash flow per dollar of sales. Theoretically, a company that generates more free cash flow from each dollar of sales has either pricing power, more efficient operations, or both.

This gives us a fourth reason to consider Wal-Mart Stores, Inc. (NYSE:WMT). Using free cash flow per dollar of sales, the company actually leads its peer group. In the last four quarters, Walmart has generated an average of $0.03 of free cash flow for each dollar of sales. This is tied for first with Target with $0.03, and handily beats Costco at $0.01. By comparison, Family Dollar actually reported negative free cash flow on average in the last four quarters.

Last but not least, when you look at Walmart’s yield, it leads its peers as well. The stock pays a 2.4% yield, compared to 2.09% at Target, 1.7% at Family Dollar, and 1.05% at Costco. The other article said this yield, “does not make it too attractive for dividend investors.” Again, this is short-sighted thinking.

In the last five years, Walmart’s annual dividend has nearly doubled from $0.95 in 2009 to $1.88 today. Second, in the last three years, the average yield on the S&P 500 has ranged from 1.76% to 2.2%. I’m not sure how a yield that is growing, and already beats the S&P could be considered “not attractive.”

The bottom line is, Wal-Mart Stores, Inc. (NYSE:WMT)‘s yield looks good, the company is winning business, carries a good margin, and generates peer leading cash flow. With shares changing hands at about 14.7 times projected earnings, the stock is also relatively cheaper than Target at 14.99 times, Family Dollar at 15.97, and Costco at 23 times earnings. As you can see, investors have more than enough reasons to consider not only holding their Walmart shares, but buying more at today’s prices. If you want to keep up with what’s happening at the world’s largest retailer, consider adding WMT to your personalized Watchlist today.

The article 5 Reasons This Retailer Looks Poised to Outperform originally appeared on Fool.com and is written by Chad Henage.

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