Walmart Stock Analysis & A Walmart Dividend Review

Is Walmart A Good Dividend Stock?

It’s time for a Walmart stock analysis. Why? Because I have been asking myself if Walmart is a good dividend stock anymore?

Or, has Walmart dividend growth become an afterthought to company management?

So let’s assess Walmart stock and the Walmart dividend by completing a Walmart stock analysis. Also, a thorough evaluation of the Walmart dividend. For this long-time member of the Dividends Diversify dividend stock portfolio.

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Walmart Company Background

Walmart is an American multinational retail corporation.

They operate a chain of hypermarkets, discount department stores, and grocery stores.  Walmart also owns and operates Sam’s Club retail warehouses. The company has thousands of stores and clubs in dozens of countries.

Headquartered in Bentonville, Arkansas, Walmart was founded by Sam Walton in 1962.  And was incorporated on October 31, 1969.

Source:  Wikipedia

Walmart Stock Symbol

Walmart trades on the New York Stock Exchange under the ticker symbol WMT. (NYSE: WMT)

Walmart Operating Segments

Walmart does business through 3 operating segments.

Walmart U.S.

First of all, Walmart U.S. is the largest segment and operates retail stores in the 50 United States, Washington D.C., and Puerto Rico.   They have 3 primary store formats plus digital retail through Walmart e-commerce.

The U.S. segment has historically contributed the greatest share of company sales and operating income.

Walmart International

Walmart International is the second largest segment and consists of operations in dozens of countries outside of the U.S.  International operations include numerous store formats as well as digital retail.

Sam’s Club

Sam’s Club consists of membership-only warehouse clubs and operates in most of the United States, Puerto Rico, and internationally.  This segment also offers digital retail for customers.

Sam’s Club accounts for the smallest portion of net sales.  As a membership-only warehouse club, membership income is a significant component of the segment’s profit.

Walmart Business Strategy

Walmart believes that price, access, assortment, and experience drive a customer’s choice of retailer.  Historically, Walmart led on price and assortment.

However, retail environments are more competitive today. Especially with increasing demand for e-commerce shipments to our homes.  So to win, Walmart strives to

• Lead on price
• Invest to differentiate on access
• Be competitive on assortment
• Deliver a great customer experience

They want to understand not only what their customers want and need, but also where they want it and how they want to experience it.

My Personal Experience With Walmart

I have never been a big fan of Walmart’s in-store experience.  Large, congested parking lots and stores to navigate.  And battleship style shopping carts.  This has never been my favorite way to spend time.

In contrast, I do like the low prices for commodity goods and brand name products.   Because of this, I am willing to put up with the inconvenience to save money in-store from time to time

I have only ordered online from Walmart on a few occasions.  The online experience was pretty smooth and the product arrived quickly with free shipping.

On the other hand, I wanted to return a product purchased online because it did not meet my needs.  The product had a no return policy.  I wasn’t exactly sure why.

I speculated it was due to the product being directly shipped from the manufacturer. It was a small purchase, so I didn’t let it bother me.

Ultimately, the big question is if Walmart can compete effectively with Amazon for online sales?

That’s enough about my Walmart shopping experiences.  I’m an investor.

So let’s get on with the Walmart stock analysis with a special focus on Walmart’s dividend. I want to better understand the prospects for Walmart’s dividend growth.

How Much Is The Walmart Dividend?

Walmart pays an annual forward dividend of $2.16 per share.

Walmart Dividend Yield

Based on the recent stock price, Walmart’s dividend payout puts the Walmart dividend yield at 1.75%.

The Walmart dividend yield is a little low for my taste. I prefer a dividend yield between 3 and 5%.

When a stock’s dividend yield is this low, I like to see higher dividend growth in the range of 7-9%. We will get to Walmart’s dividend growth shortly.

But first, a couple of other questions and answers about the Walmart dividend.

How Often Does Walmart Pay A Dividend?

Walmart pays its dividend every 3 months or 4 times per year. Each quarterly dividend payment is 54 cents per share.

In What Months Does Walmart Pay Dividends?

Walmart pays dividends in the following months: January, April, June, and September.

What Is The Ex-Dividend Date For Walmart Stock?

Do you want to receive Walmart’s next dividend payment? Then, you need to complete your purchase of Walmart stock by the ex-dividend date.

Walmart’s ex-dividend date is approximately the 10th day of each month during which it pays a dividend. Since the date varies, it’s a good idea to check Walmart’s dividend history on its investor relations website. There you will find the exact ex-dividend date for each quarterly payment.

Walmart Dividend History

Walmart’s dividend history is rich in tradition.  They have increased their annual cash dividend every year since first declaring a $0.05 per share annual dividend in March 1974.

This is a remarkable 47-year streak of annual Walmart dividend increases. I am quite certain Walmart will be a Dividend King in a few short years.

But, I promised I would get to Walmart’s dividend growth rate. Let’s see what that looks like now.

Walmart Dividend Growth Rate

Based on table 1 shown below, you can see Walmart’s dividend growth rate is quite low. This is not what I like to see when Walmart stock has a sub 2% dividend yield.

Table 1: Historical Walmart Dividend Growth Rate Percentage

1 Year	3 Years	5 Years	7 Years
1.9%	2.0%	2.0%	4.2%

The dividend increase for the fiscal year 2021 was no exception.  Management announced another small increase of 1.9%.

In chart 1 shown below, check out how the Walmart dividend growth rate has slowed.  Prior to 2014, the Walmart dividend grew rapidly.

But the flat slope to the annual dividend rate line indicated in the chart and starting in 2014 tells a different story. Specifically, management has reduced Walmart’s dividend growth dramatically in the last 6 years.

Chart 1: Historical Walmart Dividend Growth Rate in Dollars Per Share

Walmart Revenue

Walmart’s business strategy states it well.  Competition in the retail environment is challenging with the likes of Target, Walgreens, Aldi, and many others competing for the same customers.

The competition has taken a toll on Walmart’s revenue growth. Revenue finally started to grow slowly in fiscal years 2018 and 2019. But the recent growth rate only amounts to about 3% per year.

Chart 2: 7 Year Walmart Annual Revenue Trend

It’s very hard to grow revenue rapidly based on their current size. Walmart is one of the largest companies in the world as measured by annual revenues.

Walmart Dividend Payout Ratio Based On Earnings

As shown in chart 3, Walmart’s earnings per share were pressured in fiscal years 2018 and 2019 by a host of one-time factors.  They included:

• Restructuring expenses
• Losses on early extinguishment of debt
• Losses on various international operations and investments

With those one-time charges out of the way, the fiscal year 2020 provided a normalized view of Walmart’s profitability.  And a good view of Walmart’s dividend payout ratio.

What I first see looking at the chart is little to no earnings growth over the past seven years.

Chart 3: Shows Walmart’s Dividend Payout Ratio For 2020 at 41% Of Earnings

But, on a positive note, I see a dividend that is well covered by earnings.

Specifically, the Walmart dividend payout ratio based on earnings for the fiscal year 2020 was 41%

Walmart Dividend Payout Ratio Based On Cash Flow

Next, let’s check Walmart’s dividend payout ratio against free cash flow.

I know Walmart has had to make significant investments in technology to compete with Amazon. And spend additional capital on stores to improve the customer in-store shopping experience.

All of those expenses and capital expenditures take cash. And our dividends are paid from the cash that is left over.

Chart 4: Shows Walmart’s Dividend Payout Ratio For 2020 at 44% Of Cash Flow

Based on the chart above, Walmart generates ample free cash flow.  And the Walmart dividend payout ratio based on that cash flow is just 44%.

Walmart uses the rest of its free cash flow to buy back stock and pay down debt.  I have no issue with the use of cash to reduce debt.

On the other hand, I would prefer to see some of the cash allocated to share buybacks go toward larger dividend increases. This shows that Walmart has the capacity for larger annual dividend increases. However, they choose not to do so.

Walmart Dividend Policy

A company, like Walmart, that has paid increasing dividends for nearly 50 years has a dividend policy. However, I have not seen formal communications from the company regarding the policy elements.

By looking at Walmart’s dividend history, I can put the Walmart dividend policy in my own words. Here it is…

Walmart has plans to pay dividends each year. And they intend to increase the dividend rate per share each year by at least a small amount.

Beyond those 2 conclusions, I can not speculate further. So, that leads me to my Walmart dividend growth rate forecast.

Walmart Dividend Growth Rate Forecast

I get no indication from reading Walmart’s investor materials that they plan larger dividend increases in the near future.

My best forecast is that Walmart’s future dividend growth will be similar to recent years. So, I am going to use a 2% Walmart annual dividend growth rate for my income planning and Walmart stock valuation purposes.

Walmart Financial Position

As previously mentioned, Walmart has been using free cash flow to reduce debt in the last several years.  So, debt to equity checks in at a very reasonable .9.

Moody’s and S&P give Walmart Aa2 and AA credit ratings, respectively. 

Table 2: Credit Rating Evaluation Grid

They are “Investment Grade – Low Credit Risk” ratings.  It is rare for a company to be rated much higher than this. Johnson & Johnson and Microsoft are the only 2 US-based companies with AAA credit ratings.

To conclude, Walmart has a strong balance sheet and high credit rating based on these metrics. Their financial position is very strong.

Walmart Dividend Safety

I judge Walmart’s dividend to very safe from a reduction for the foreseeable future. I make this assessment based on:

• Walmart’s dividend payout ratio
• Excellent financial position
• Stable business model

Walmart Stock Analysis: Stock Price Valuation

Walmart stock is overvalued using most valuation measures.

Let’s prove this out by looking at Walmart stock value using several methods and resources:

• Dividend discount model
• Price to earnings ratio
• Morningstar fair value estimate
• The Simply Investing Report

Walmart Dividend Discount Model

The single-stage dividend discount model considers several factors I have discussed thus far.

• Current dividend payment – $2.16 per share
• Projected dividend growth – 2%
• My desired annual return on investment – 9%

Using these assumptions, the dividend discount model is not kind to Walmart’s stock valuation.

The dividend discount model doesn’t like the low Walmart dividend combined with low dividend growth.  And it judges the fair value of Walmart stock to be $31.  This is well below the current market price.

Dividend growth would have to approach 7% for the dividend discount model to suggest Walmart stock is a buy.

Walmart Stock Price to Earnings Ratio

The Walmart stock price to fiscal 2020 earnings is nearly 24 times.  To compare, the S&P 500 price to earnings ratio is less than 19 times.  Walmart is clearly more expensive than the stock market as a whole.

Morningstar Fair Value

The investment analysis firm Morningstar believes Walmart stock is fairly valued at $108 per share.

The Simply Investing Report

Let’s cross-check my Walmart stock analysis with the Simply Investing Report. It’s an excellent publication that provides dividend stock research and recommendations.

The Simply Investing Report considers Walmart stock undervalued.

Simply Investing bases valuation on the following factors.

First of all, the price to earnings ratio must be 25 or below.  Furthermore, the current dividend yield must be higher than the average dividend yield over the past 20 years.  Finally, the stock price to book ratio should be 3 or less.

Also, Simply Investing grades Walmart a 7 out of a possible 9 using the Simply Investing criteria. This is an excellent score.

Read My Review: Dividend stock analysis & recommendations from Simply Investing

Walmart Stock Analysis & Dividend Review Wrap Up

This completes the Walmart stock analysis and assessment of the Walmart dividend. Let’s conclude by answering a couple of key questions.

Is Walmart A Good Dividend Stock?

 I do not consider Walmart a good dividend stock.  Just my humble opinion, but this analysis reinforces it.

Why is Walmart no longer a good dividend stock? First of all, its dividend yield is too low, at less than 2%.

Furthermore, annual dividend growth is slow, also about 2%. Finally, management allocates a significant amount of cash to share repurchases. Rather than dividend increases.

From my dividend investor’s perspective, Walmart has one redeeming quality. What’s that? A high degree of dividend safety.

Is Walmart A Good Stock To Buy And Hold Long-Term?

Now, let me broaden my investment perspective. Once I do so, I consider Walmart a good stock to buy and hold long-term.

First of all, I believe Walmart is meeting the challenges of competing at a high level for e-commerce revenue. Furthermore, they have reinvented themselves to become an omnichannel retailer. Finally, their operational expertise, scale, and financial backing are forces to be reconned with for years to come.

Most importantly, when I look back at the last 2 bear markets, Walmart stock has been one of my best performers. First, during the financial crisis of 2008-2009. And more recently, during the bear market of 2020.

I like having 1 or more holdings in my dividend stock portfolio that has a track record of performance during difficult economic times. And, Walmart has proven that not just once, but twice over the long-term.

Is Walmart Stock A Buy Now?

Finally, you may be interested if I think WMT is a buy or sell.

Unfortunatley, Walmart stock does not appear to be a good buy now.

The Walmart stock price appears overvalued. For me, I would like to get at least a 2% dividend yield with any new purchases. That puts my personal buy price at $108 per share.

To conclude, I currently consider Walmart stock a solid long-term “hold”.

And we can always hope that management will loosen up their purse strings and allocate more cash to dividend increases in the future.  But hope is typically not a good investment strategy!

Further Reading About Dividend Investing And Dividend Stocks

• Several stocks with rapid dividend growth
• Blue-chip stocks with high dividend yields
• Investing in utility stocks
• Clorox stock and dividend review

My Favorite Dividend Investing Resources

• The Simply Investing Report
• Trade stocks for free with the Webull app

Disclosure & Disclaimer

This article, or any of the articles referenced here, is not intended to be investment advice specific to your situation. I am not a licensed investment adviser, and I am not providing you with individual investment advice. The only purpose of this site is information & entertainment. We are not liable for any losses suffered by any party because of information published on this blog. See this site’s Disclaimer and Privacy tab for more information.

Hoping you enjoyed this Walmart stock analysis! I own Walmart stock & receive the Walmart dividend.