Some companies have such a consistent and compelling dividend growth story that dividend growth investors will buy shares of that company regardless of the current price. Walmart just happens to be just one of those companies. And those dividend growth investors that have bought shares in Walmart have seen their dividends grow tremendously over the years. But if you look at their wealth, it's been a more volatile picture.
10 years of Dividend Growth That's where the idea of total return makes more sense to me than simply dividend growth. I prefer to invest in companies that not only have a great dividend growth story but also a great total return story.
I first identify those companies that have a consistent and exceptional dividend growth history over a lengthy period of time. I then look to see if those companies are expected to grow their stock price over the next year. For that information I turn to the analysts.
Other investors prefer to look at the stock's current P/E ratio to determine if the stock will grow over the following year. Both methods can be useful as long as you know the underlying assumptions of each method.
When looking at the difference between the current price and the projected target one year out, the assumption that I am making is that the analysts have done their due diligence and their projections are accurate. That obviously is not always the case. Often analysts provide projections with their own benefit in mind. This can sometimes be thought of as leading a stock. Those analysts exist but they are few and far between. Therefore, when I'm considering analysts projections I take into account the number of analysts that were averaged in order to calculate that projection. If I see three or fewer analysts, I'm somewhat sceptic about the projection. If I see five or more analyst, I'm more confident in the projection.
For those investors that rely primarily on the P/E ratio, their assessment is a little different. They need to calculate the average P/E over a long period of time and then determine whether the current P/E is lower or higher than that average. If it's lower, the stock is considered inexpensive and the stock should be bought. If it's higher, the stock should be avoided. The assumption in this case is that the stock will always return to the mean and that nothing has structurally changed the business of the company which would affect the P/E ratio going forward.
Both methods are effective and I tend to use them both. But personally I rely on analysts projections first and then look for confirmation in the P/E ratio.
I first identify those companies that have a consistent and exceptional dividend growth history over a lengthy period of time. I then look to see if those companies are expected to grow their stock price over the next year. For that information I turn to the analysts.
Other investors prefer to look at the stock's current P/E ratio to determine if the stock will grow over the following year. Both methods can be useful as long as you know the underlying assumptions of each method.
When looking at the difference between the current price and the projected target one year out, the assumption that I am making is that the analysts have done their due diligence and their projections are accurate. That obviously is not always the case. Often analysts provide projections with their own benefit in mind. This can sometimes be thought of as leading a stock. Those analysts exist but they are few and far between. Therefore, when I'm considering analysts projections I take into account the number of analysts that were averaged in order to calculate that projection. If I see three or fewer analysts, I'm somewhat sceptic about the projection. If I see five or more analyst, I'm more confident in the projection.
For those investors that rely primarily on the P/E ratio, their assessment is a little different. They need to calculate the average P/E over a long period of time and then determine whether the current P/E is lower or higher than that average. If it's lower, the stock is considered inexpensive and the stock should be bought. If it's higher, the stock should be avoided. The assumption in this case is that the stock will always return to the mean and that nothing has structurally changed the business of the company which would affect the P/E ratio going forward.
Both methods are effective and I tend to use them both. But personally I rely on analysts projections first and then look for confirmation in the P/E ratio.
Wal-Mart Stores, Inc. operates retail stores in various formats worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam’s Club. It operates discount stores, supermarkets, supercenters, hypermarkets, warehouse clubs, cash and carry stores, home improvement stores, specialty electronics stores, restaurants, apparel stores, drug stores, and convenience stores, as well as retail Websites, such as walmart.com and samsclub.com. The company’s stores offer meat, produce, deli, bakery, dairy, frozen foods, alcoholic and nonalcoholic beverages, and floral and dry grocery; health and beauty aids, baby products, household chemicals, paper goods, and pet supplies; electronics, toys, cameras and supplies, photo processing services, cellular phones, cellular service plan contracts and prepaid services, movies, music, video games, and books; and pharmacy, optical, over-the-counter drugs, and clinical services. Its merchandise also include stationery, automotive accessories, hardware and paint, sporting goods, fabrics and crafts, and seasonal merchandise; apparel for women, girls, men, boys, and infants, as well as shoes, jewelry, and accessories; and home furnishings, housewares and small appliances, bedding, home décor, outdoor living, and horticulture products. The company also provides financial services and related products, including money orders, prepaid cards, wire transfers, money transfers, check cashing, and bill payment. In addition, it offers brand name merchandise, including hardgoods, softgoods, and selected private-label items, such as Member’s Mark and its own proprietary brands, such as Daily Chef and Simply Right. Further, the company operates banks that provide consumer financing programs. It operates approximately 11,000 stores under 72 banners in 27 countries; and e-commerce websites in 11 countries. The company was founded in 1945 and is headquartered in Bentonville, Arkansas.
(Summary) (Company) (Daily Chart)
(Summary) (Company) (Daily Chart)
| Price $73.12 1yr Target $80.24 No. of Analysts 21 1yr Cap Gain 9.73% Dividend $1.96 Yield 2.68% 1yr Tot Return 12.41% 1yr EarnGR 3.48% 3yr EarnGR 3.72% 5yr EarnGR 6.36% 1yr DivGR 2.08% 3yr DivGR 7.14% 5yr DivGR 10.12% Payout Ratio 39.87% | Market Cap $235.49 Bil Beta 0.41 EPS (ttm) $4.89 EPS next yr $5.01 P/E 14.95 PEG 3.45 Forward P/E 14.61 Debt/Equity 0.66 ROA 9.70% ROE 25.00% ROI 14.60% Sales $485.52 Bil Income $15.84 Bil Profit Margin 3.26% |
My Perspective
Walmart Weekly Chart A year ago Walmart was paying a nice dividend and the analysts projections were that the company's stock would move higher over the following twelve months. That was great news for the type of investing I do. So I bought. As 2014 came to an end it became more and more obvious that the gains were being made over just a few months rather than over the entire twelve months. Recognizing that, I reduced the number of buys in Walmart stock to near zero by the end of that year. In 2015 I simply held my position and collected dividends, as most dividend growth investors do when a stock appears overbought.
But as can be easily seen in the weekly chart, the stock has now fallen back into the low 70s where it was almost one year ago. Now there's many reasons for why the stock sits at this level and any google search can provide most of those reasons. For me, I'm just looking at the numbers above and I'm seeing a similar situation to the what I saw last year.
Based on the information above, I'm once again buying shares of Walmart. But I'm well aware of and concerned about the slowing growth rates for both earnings as well as dividends. These are things that will have to be monitored closely. As a result I have started buying small amounts of Walmart and I will continue to buy and increase those buys as the numbers above improve.
But as can be easily seen in the weekly chart, the stock has now fallen back into the low 70s where it was almost one year ago. Now there's many reasons for why the stock sits at this level and any google search can provide most of those reasons. For me, I'm just looking at the numbers above and I'm seeing a similar situation to the what I saw last year.
Based on the information above, I'm once again buying shares of Walmart. But I'm well aware of and concerned about the slowing growth rates for both earnings as well as dividends. These are things that will have to be monitored closely. As a result I have started buying small amounts of Walmart and I will continue to buy and increase those buys as the numbers above improve.
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