Walmart's (NYSE:WMT) Shareholders Will Receive A Bigger Dividend Than Last Year

Walmart Inc. (NYSE:WMT) will increase its dividend on the 6th of September to US$0.56. Based on the announced payment, the dividend yield for the company will be 1.8%, which is fairly typical for the industry.

See our latest analysis for Walmart

Walmart's Earnings Easily Cover the Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Walmart's dividend was only 35% of earnings, however it was paying out 197% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

The next year is set to see EPS grow by 30.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 37%, which is in the range that makes us comfortable with the sustainability of the dividend.

Walmart Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from US$1.59 in 2012 to the most recent annual payment of US$2.24. This implies that the company grew its distributions at a yearly rate of about 3.5% over that duration. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Although it's important to note that Walmart's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. If Walmart is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

Our Thoughts On Walmart's Dividend

Overall, we always like to see the dividend being raised, but we don't think Walmart will make a great income stock. While Walmart is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 5 warning signs for Walmart that investors need to be conscious of moving forward. Is Walmart not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.