Do Investors Have a Friend in Walmart?
Walmart has a strong dividend connection
Wal-Mart Stores (WMT) has a solid track record of rewarding investors with higher dividends and share buybacks. In fiscal 2017 (ended January 31, 2017), the company returned $14.5 billion to its shareholders in the form of $6.2 billion in dividends and $8.3 billion in share repurchases.
Notably, these rewards come at a time when the company is investing heavily in technology, stores, and its workforce to drive growth.
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Walmart’s dividend growth
Walmart is a dividend aristocrat, which means that it has increased its dividends for more than 25 years in a row. Walmart has increased its dividends for 44 consecutive years. During the last reported quarter, the management announced a 2% hike in its annual dividend to $2.04 for fiscal 2018.
This growth in dividends has been supported by Walmart’s strong free cash flow generation (operating cash flow minus capital spending) capability. During fiscal 2017, Walmart generated about $20.9 billion in free cash flow, which is about $5 billion higher than in the prior year.
Dividend yield signifies how much cash flow investors could receive for every dollar they invest in the company. Walmart’s current dividend yield of 2.9%, based on the closing price of $70.58 as of March 15—higher than peers Costco Wholesale (COST), Kroger (KR), and Dollar General (DG), which have dividend yields of 1.1%, 1.7%, and 1.4%, respectively. However, Walmart’s yield is significantly lower than that of Target (TGT), which offers a dividend yield of 4.4%.
The road ahead
Given the company’s excellent track record of rewarding investors and strong free cash flow, fiscal 2018 could prove to be yet another year wherein Walmart could return a significant amount of cash to shareholders. Walmart has already announced a 2% hike in its annual dividend for the current fiscal and remains on track to repurchase a substantial amount of shares under its current $20-billion share repurchase program. As of the end of fiscal 2017, the company repurchased approximately $10.8 billion worth of shares.
Meanwhile, ETF investors looking for exposure to Walmart can consider the Consumer Staples Select Sector SPDR ETF (XLP), which invests 5.5% of its portfolio in the company.