Investors who want to cash in on Walmart Inc.’s (NYSE:WMT) upcoming dividend of US$0.53 per share have only 2 days left to buy the shares before its ex-dividend date, 14 March 2019, in time for dividends payable on the 01 April 2019. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I examine Walmart’s latest financial data to analyse its dividend characteristics.
How I analyze a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has the amount of dividend per share grown over the past?
- Does earnings amply cover its dividend payments?
- Will the company be able to keep paying dividend based on the future earnings growth?
How well does Walmart fit our criteria?
Walmart has a trailing twelve-month payout ratio of 91%, meaning the dividend is not sufficiently covered by its earnings. In the near future, analysts are predicting a more sensible payout ratio of 45%, which, assuming the share price stays the same, leads to a dividend yield of 2.3%. Furthermore, EPS should increase to $4.71, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. WMT has increased its DPS from $1.09 to $2.12 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.
In terms of its peers, Walmart produces a yield of 2.2%, which is high for Consumer Retailing stocks but still below the market’s top dividend payers.
With this in mind, I definitely rank Walmart as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three important aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for WMT’s future growth? Take a look at our free research report of analyst consensus for WMT’s outlook.
- Valuation: What is WMT worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether WMT is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.