Wal-Mart Stores, Inc. operates retail stores in various formats worldwide. The company is member of the S&P 500, Dow Jones Industrials Average and the S&P Dividend Aristocrats indexes. Wal-Mart Stores has consistently increased dividends every year for 36 years. The company announced an 11% dividend raise in March 2010.
Over the past decade this dividend stock has delivered a negative average total return of 0.50% annually. The stock is trading at the same levels it was changing hands a decade ago.
The company has managed to deliver an 11.60% average annual increase in its EPS between 2000 and 2009. Next year Wal-Mart is expected to earn $4.01 share, followed by $4.40/share in FY 2011.
With growth slowing down, the price/earnings multiple could contract even lower. This being said I believe Wal-Mart is an excellent business, as it always investing in innovation that helps control inventory and focus on certain types of merchandise that offsets weaker demand in recessions. Despite the expected slow down in consumer spending, Wal Mart is well positioned with its diverse product mix of consumer staples and foods that it is offering on its shelves. It has lower prices in comparison to its competitors, which could drive more traffic for the retailer. Just like Walgreen (WAG), Wal-Mart Stores expects to slow down on the rate of opening new stores and instead would try to focus on developing the profitability of existing locations, without cannibalizing sales in its existing outlets. The lower capital spending has freed up enough cash flow to fund the company's agressive share buyback program.A potential growth area for the company are its international operations, where selling space has increased by more than 40% since 2006. Wal-Mart (WMT) currently has 267 locations in China, operating under Wal-Mart or Trust Mart’s names. The company had 3615 international locations at the end of 2008. There is still room for growth in Chinese operations, fueled by the increase in number of middle-class families in the country. For Wal-Mart, China represents the biggest frontier since it conquered America. China's voracious consumers are pushing retail sales to a 15 percent annual growth rate; that market will hit $860 billion by 2009, according to Bain & Co. (source).
The Return on Equity has firmly remained above 20%. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
Annual dividends have increased by an average of 18.30 % per annum since 2000, which is higher than the growth in EPS. The disparity is mostly due to a gradual increase in the dividend payout ratio and the billions of dollars the Bentonville, AR based retailer has spend on stock buybacks.An 18 % growth in dividends translates into the dividend payment doubling almost every four years. If we look at historical data, going as far back as 1981, Wal-Mart has actually managed to double its dividend payment every three years on average. Wal-Mart is an example of a company that kept paying dividends while enjoying strong double digit growth for several decades.
The slowdown in capital spending could free up more cash for dividend increases and share buybacks. Thus, despite expectations for EPS growth of 7% over the next few years, Wal-Mart could still manage to deliver low double-digit dividend growth.The dividend payout ratio has been on the rise, although it is still much lower than my 50% threshold. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently Wal-Mart Stores is trading at 14.20 times earnings, yields 2.20% and has an adequately covered dividend payment. The company does spend a lot of its cash flow on stock buybacks, which could prove beneficial in the long run since it could provide above average dividend growth over time for the same effort. [more]
Twelve companies raised distributions last week. I have highlighted each company below with brief information as a starting point for further research. Stocks that raise distributions have managed to outperform the S&P 500 over the past four decades, which is one of the many reasons to consider them for my dividend portfolio. [more]
Walgreen Co is the nation's largest drugstore chain with fiscal 2008 sales of $59 billion. The company operates 6,902 drugstores in all 50 states, the District of Columbia and Puerto Rico. The company is member of the S&P 500 and was a recent addition to the S&P Dividend Aristocrats index.Walgreen Co has paid dividends for more than 76 years and consistently increased payments to common shareholders every year for 35 years. On July 14, the company raised distributions by 27.30% to 17.50 cents/share. [more]
Over the past 80 years, stocks have returned almost 10% annually. Dividends have accounted for approximately 40% of average annual returns. At the same time inflation has averaged 3% annually. These numbers are all averages however – investors cannot expect to generate 10% per year in total returns every single year. Stock returns fluctuate over time. While stock prices gyrate wildly up and down dividends provide a more stable component of total returns. [more]
Back in 2003 the Bush administration cut the top rates on dividends and capital gains to 15%. After seven years the preferential treatment of investment income is set to expire. If congress doesn’t extend the tax cuts, the top rates on dividend income could increase to as much as 39%. This leaves ...
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Family Dollar Stores, Inc.(FDO) operates a chain of self-service retail discount stores for low to lower-middle income consumers in the United States. The company is a member of the S&P Dividend Aristocrats index, after raising distributions for 34 consecutive years.
Over the past 10 years this dividend stock has delivered an annual average total return of 9 % to its shareholders. After peaking at 44 in late 2003, the stock fell all the way down to 15 in 2007, before recovering all the way to 40. [more]
Dividends have historically contributed about 40% of common stocks annual average returns. Reinvested dividends however have contributed almost 97% of S&P 500 total returns since 1871. Add to that the fact that retirees are looking for a better way to generate income than the low rates on bank deposits. Thus it is no surprise that investors’ interest in dividend investing is increasing.
Two differing paths are presented to aspiring dividend investors. One path is to do it on your own. Another path is to trust the experience of an investment professional and invest in dividend funds or dividend etfs. In this article I would compare and contrast the two methods and also outline some of the most widely held alternatives for both scenarios. Continue Reading... [more]
McDonald’s Corporation, together with its subsidiaries, franchises and operates McDonald’s restaurants in the food service industry worldwide. The company's share of the US fast food market is several times larger than its closest competitors, Burger King (BKC) and Wendy's (WEN).
McDonald’s is a major component of the S&P 500 and Dow Industrials indexes. The company is also a dividend aristocrat, which has been consistently increasing its dividends for 33 consecutive years. McDonald’s is one of the world’s most recognizable brands. Because of this and because it has performed very well to stockholders over the years, it is one of the most widely held income stocks by dividend investors.
Over the past decade this dividend stock has delivered an annual average total return of 8.70% to its shareholders.
At the same time company has managed to deliver an impressive 12.20% average annual increase in its EPS since 2000. Analysts are expecting MCD to grow EPS to $4.49 by 2010 and $4.87 in 2011.. The economic slowdown is making consumers to trade down and dine out at fast food places like the ones owned by the Golden Arches. Mcdonald’s has been focusing more on expanding the sales of existing restaurants since 2003 versus relying on new stores to be the driver for growth. Same store sales and profits have been driven by product innovation, and comparable-store sales growth, and are part of the company’s recent success. The constant innovations in the menu are indeed fueling strong same store sales volumes. The McCafe Offerings, in addition to the Dollar Breakfast Menu and Restaurant remodeling are further fuelling the growth in sales.
International operations, which accounted for almost half of operating profits in 2008, have been a major growth factor over the past two decades. This however exposes the company to fluctuations in exchange rates, which could add or detract from EPS performance. MCD's stated operating priorities include fixing operating inadequacies in existing restaurants; taking a more integrated and focused approach to growth, with an emphasis on increasing sales, margins and returns in existing restaurants; and ensuring the correct operating structure and resources, aligned behind focusing priorities that create benefits for its customers and restaurants.
The ROE has been increasing since it hit a low of 14 in 2002. Recently it hit 30%, and has stayed above that level for two consecutive years.
Annual dividend payments have increased by an average of 28.20% annually since 2000, which is almost two and a half times higher than the growth in EPS.
A 28 % growth in dividends translates into the dividend payment doubling almost every two and a half years. Since 1979 McDonald’s has actually managed to double its dividend payment almost every four and a half years on average. Future dividend payments would likely grow at 10% for the foreseeable future. The dividend payout ratio has steadily increased over the past decade, due to the fact the dividend growth was much faster than earnings growth. Currently the payout is at 50% . A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings. The slow growth in earnings could put future dividend increases at risk.
McDonald’s is currently attractively valued. The stock trades at a P/E of 16.50, yields 3.10% and has an adequately covered dividend payment. The company has proven to be somewhat recession resistant. I would be a buyer of MCD at current prices. [more]
When it comes to dividends, investors either immediately grasp the concept or dismiss it altogether. After all dividend payments are more stable than price returns. In addition to that, dividends have accounted for 40% of average annual total returns since the 1920s. Reinvested dividends on the other hand have accounted for over 90% of total stock market returns since 1871. As a result, it is no surprise that income investing is gaining support at a time when stock markets have been mostly flat for over a decade.
Back in 2009 several stock bloggers and I chose four stock picks each in a friendly stock contest. The companies I selected have low earnings volatility and as a result have stable dividend payments. In addition to that, the four companies were representative of four sectors of the economy – real estate, tobacco, utilities and energy. The companies include Realty Income (O), Con Edison (ED), Philip Morris International (PM) and Kinder Morgan Energy Partners (KMP).
Kinder Morgan Energy Partners, L.P. (KMP) owns and manages energy transportation and storage assets in North America. This dividend achiever has raised distributions to unit holders for fourteen consecutive years. The last distribution increase occurred in 2010, when this master limited partnership increased quarterly distributions from $1.05 to $1.07/unit. Yield 6.50%. (analysis)
Realty Income Corporation (O) engages in the acquisition and ownership of commercial retail real estate properties in the United States. This dividend achiever has raised distributions for sixteen consecutive years. Since the end of 2009, Realty Income has raised distributions from 0.1426875/share to 0.1433125/share. Yield 5.50%. (analysis)
Consolidated Edison, Inc., (ED) through its subsidiaries, provides electric, gas, and steam utility services in the United States. This dividend aristocrat has raised distributions for 36 consecutive years. Earlier this year the company raised distributions from 59 cents/share to 59.5 cents/share. Yield 5.40%. (analysis)
Philip Morris International Inc. (PM), through its subsidiaries, engages in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States. The company has increased dividends twice since the spin-off from Altria (MO) in 2008. The last dividend increase was announced in September 2009. Yield 5.00%. (analysis)
The above mentioned stocks are good additions for current income. They should only be a part however of a diversified income portfolio, whose goal would be to produce income until the dividend growth component of the portfolio kicks in and starts generating enough cash flow. I would expect slow distribution growth from these stocks over the next few years.
Overall, this portfolio has achieved a 6.39% total return so far in 2010. I outperforming the stock selections of the other market newsletters for a second quarter in a row. (see results below)
Dividend Growth Investor: 6.39%
My Traders Journal: -11.90%
Where does all my money go: -14.16%
Zach Stocks: -17.24%
Intelligent Speculator: -19.06%
Four Pillars: -20.11%
The Financial blogger: -22.65%
Million Dollar Journey: -23.65%
The lesson to learn is that "boring" dividend stocks are less volatile in comparison to the overall market. The regular dividends paid also make shareholders hold on to their shares through thick and thin, without panicking. As long as dividends are being paid, income investors realize a positive return even in a flat or down market.
Full Disclosure: Long all stocks mentioned above
- Top Dividend Stocks for 2010, 1Q update
- 2010’s Top Dividend Plays
- Best High Yield Dividend Stocks for 2009
- Five Consumer Stocks for 2010 [more]