Walmart Keeps Moving Its Dividend Up With Good Performance, Pushing Its Stock Higher

Walmart (NYSE:WMT)has not done that badly this year. WMT stock is actually about at par for the year-to-date (YTD) as of March 14, as it closed at $144.05. This is close to where it ended last year at $144.69.

Image of Walmart (WMT) logo on Walmart store with clear blue sky in the background
Source: Jonathan Weiss / Shutterstock.com

Moreover, WMT stock is buttressed by a solidly growing dividend. For example, on Feb. 17, the massive retailer raised its dividend per share (DPS) to $2.24 on an annual basis. This gives the stock an annualized dividend yield of 1.58%.

But even more importantly this is the 49th year in a row that the company has raised the annual dividend, which is paid out on a quarterly basis. Interestingly, Walmart is one of the few companies that makes its quarterly dividend declarations ahead of time for the next year.

That gives investors a good deal of confidence. And why not? Investors expect Walmart to make at least $6.73 on average for the year ending Jan. 2023, according to Seeking Alpha. That more than covers the $2.24 dividend (i.e., the payout ratio is just 33%).

In addition, it doesn’t hurt that Walmart has plenty of cash and free cash flow to be able to pay out the dividend.

Cash Flow at Walmart Is Strong

On Feb. 17, Walmart reported strong earnings growth, although its sales growth was not much more than expected. But I always focus on the company’s free cash flow (FCF), as this is what enables the company to be able to pay a dividend.

For example, the company’s cash flow from operations (CFFO) for 2021, as seen on page 7 of its earnings release, was $24.18 billion. Then, after deducting $13.1 billion in capex spending (to upgrade and modernize stores, etc.), Walmart’s FCF was $11 billion.

That represents 1.92% of its total $572.8 billion in sales for the year. This is not that high an FCF margin, but it is more than sufficient to cover the dividend payments.

For example, in 2021, the total dividend cost, as seen in the cash flow statement was $6.15 billion. That is well below the $11 billion in FCF that Walmart generated during the year.

So, Walmart must be fairly confident that it can do this again, especially since the DPS is only 2% higher (i.e., $2.24 vs. $2.20 last year). That implies that the dividend cost will be just $6.273 billion. That again will be well below the funding source of $11 billion in FCF.

Moreover, Walmart already has $14.76 billion in cash on its balance sheet. That is plenty of cash to cover its dividend payments and also, along with its free cash flow, to cover the cash needs of its business.

Where This Leaves WMT Stock

On top of this, last year, Walmart decided to buy back $9.7 billion of its shares outstanding. That does two good things for WMT stock. First, it allows the earnings per share (EPS) to be higher than it would be otherwise.

And secondly, the dividend cost could actually be lower than it would be otherwise. By having fewer shares outstanding this year than last year, that reduces the overall cost in dollars of the DPS paid out to shareholders than otherwise.

As a result, investors should be very comfortable investing in WMT stock at this point. Its valuation metrics do not look expensive as well. According to Seeking Alpha, its forward price-to-earnings (P/E) multiple is just 21 times forecast EPS for the year to January 2023. In addition, the price-to-sales (P/S) multiple is less than 1 times, at 0.68 times.

Moreover, analysts seem very positive on WMT stock. The average price target of 36 analysts in the Refinitiv survey on Yahoo! Finance is $165.29. That represents an upside of almost 15% for the stock.

Bottom line: Walmart should have no problem this year paying its dividend, given its huge FCF, and that could help push the stock higher.

On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


Article printed from InvestorPlace Media, https://investorplace.com/2022/03/wmt-stock-benefits-from-a-49-year-consecurtive-growth-in-its-dividend-covered-by-its-free-cash-flow/.

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