It’s Time For Walmart To Pay A Higher Dividend

I have been saying for some time now that an investment in Walmart is dead money. Shares of Walmart are down nearly 4% today as the stock has dropped to $53 per share. The company released earnings today and the results were a mixed bag. The good news is that Walmart had total revenues of $5.02 billion. Earnings per share came in at $1.41 a share. Both numbers are an improvement over last year’s Q4 numbers.  Earnings rose 6.3 percent to $15.4 billion dollars. So, what’s the problem with Walmart?

The company’s domestic sales are simply lackluster. Same store sales growth was down 1.8% this past quarter after declining 1.3% two quarters ago. This makes it seven straight quarters of negative same store sales growth. Next quarter, same-store sales for the first quarter should are projected to be flat to negative 2 percent. Sales in the United States also declined in the quarter, by 0.5 percent to $71.1 billion. The company has no idea when domestic growth will be positive again at its Walmart stores.

Walmart is facing the same problems that every great discount retailer has faced. The company is the king of the industry so everyone is taking aim at them. Think about all of the great chains that have fallen from retail dominance in the United States to mediocrity over the years.

Former Retail Giants

Look at some of the former titans in  retail.

  • Sears
  • Kmart
  • Montgomery Ward

Walmart’s Problem

The discount retail market is very fickle. It is not like the luxury retail industry. Customers are not as loyal to companies and brands as they are to price. Now with the rise of dollar stores, Walmart is facing more and more competition. I have stated previously the threat that companies like Family Dollar and Amazon pose to Walmart. There is also The Dollar Tree, Dollar Store, Target, Costco, and a ton of wholesale clubs.

Chief Financial Officer Tim Holley stated that the company “lost some of what we call the fill-in trip, where people were still coming to the store to do their big shopping trip, but when they needed bread, milk, detergent quickly, we did lose some of that. I think it’s probably the convenience and somebody that has low price points, and dollar stores would certainly fit that category.”

When you derive over 60% of your earnings from the United States and those numbers are slipping, you just might need to refocus your efforts on domestic growth. I am not suggesting that Walmart is going under. The retailer will always make money. I am suggesting that the growth days are over for the stock.

Is Walmart A Growth Stock?

Walmart will be a growth stock again if the company can grow its international brands into a larger percentage of the company’s earnings. International earnings are solid with sales increasing 8.9 percent to $31.4 billion. This would help to replace the lower domestic growth.

Walmart’s other option is to accept the fact that the company is no longer a growth stock and increase its dividend payout to reward its shareholders. Long time shareholders have seen no capital appreciation and very low dividend payouts for years. Walmart pays out 29% of earnings via dividend distributions. The payout wouldn’t be that bad if the company had growth.

The dividend payout is comparable to Target and Costco but the stock’s growth is not. Over the past 10 years, Costco’s stock is up nearly 80% and Target’s shares have risen 50%.  Walmart is up 2.5%. Walmart has essentially been a low yielding bond for more than a decade.

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11 Responses to “It’s Time For Walmart To Pay A Higher Dividend”

  1. avatar krantcents says:

    It is much harder to be a growth company at their size and maturity in the market. They are the standard in which everyone is compared to. They would have to do something to change the company similar to HP or IBM.

  2. I agree that Wal Mart’s growth days are over. I think it will be fighting to maintain same store sales for the next few years. We may even see a large capital investment and see a format change.

  3. avatar Mihou says:

    Question:
    what do you think about these 3 cheapest stocks in Warren Buffet’s portofolio:
    CDCO
    GCI
    USG

  4. avatar JT McGee says:

    There just isn’t much growth left, and I’m sure the remaining Walton’s would love a thicker dividend. :D

    Really though, I think Walmart’s biggest worry should be Aldi. That company is tearing through the US, and was a big part of the reason Walmart wasn’t successful in Germany.

  5. I think they are going to push into metropolitan markets, the one area they are not exposed to. In 2008 they started a pilot program opening smaller format, higher-end stores (aptly named) Marketside and Neighborhood Market. Though those types of consumers generally avoid Walmarts, if they can bring their pricing power to higher end goods in city markets I think some consumers may respond. But it’ll be a tough sell.

  6. avatar Neil says:

    I agree that WMT should pay more div. They have been performing well since the beginning of ’09 and seem to be the go-to place during down turn economies.

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