Walmart: a Buffett Dividend Stock That Yacktman Is Buying

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Nov 01, 2011
Walmart (WMT, Financial), the world's largest retailer, is getting back on track after a series of missteps as the company is offering a solid earnings growth potential. Since 2008, the company increased its earnings from $3.42 to an estimated $4.45 by 2011. As prospective investors, we seek ownership of low-risk future earnings, and WMT shares represent more value now than they did a few years back.

Walmart has been raising its dividend at an impressive rate. Since 2001, the declared annual dividend has increased from $0.27 annually to $1.46 by the end of the year. Walmart has grown its dividend by 18% annually during the past decade.

Another important piece of information that potential investors should keep in mind is the fact that Walmart has increased its payout ratio: For example, in 2003, WMT paid out $0.35 in annual dividends relative to $2.03 in annual earnings. That is a very poor payout ratio for such a mega-cap company; it is around 17.2%. However, since Walmart has been raising its dividend 18% annually relative to 12% earnings growth, an increase in the payout ratio has been seen.

An increase in dividends is expected over the coming years as management has expressed its desire to eventually raise its payout ratio to 60-65% of earnings. This, together with the expected high single digit earning growth during the coming years is a great combination for those who invest in Walmart.

According to Forbes, Walmart is poised for a break out. The reasons for saying this are the following. WMT has been generating three consecutive months of positive same-store sales growth and three consecutive quarters of positive earnings. The international segment experienced a 16% increase in sales, and is gaining followers in markets like Brazil and China. WMT is also expanding its Neighborhood Markets concept to expand into urban locations and its Walmart Express stores to attract dollar store customers. Furthermore, Walmart generates strong free cash flow and this cash is been used to return value to shareholders through stock buybacks and dividend hikes.

Something worth mentioning is the new social role that Walmart is taking. The company is focusing on becoming more socially responsible. Two clear examples of this new attitude is its involvement in speeding the transition to a more concentrate detergent in order to cut waste and to provide more nutritional food to lower income consumers, among other things.

Walmart also announced its Women Economic Empowerment initiative. The main goal if this initiative is to source $20 billion from women-owned businesses in the U.S. and double sourcing from women suppliers at an international level. The company has also stated that it is addressing certain matters such as promoting diversity and making retirement programs much more appealing to attract the participation of employees.

All in all, Walmart is not only a more socially conscious company but also a company with a solid growth potential and an unmatched stability. This, along with its very reasonable valuation and 2.6% dividend yield makes WMT a great choice for potential investors.
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