Dividend Increase | Wal-Mart (WMT)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Walmart for the dividend increase!
There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On February 18th Walmart's Board of Directors approved an increase to their quarterly dividend payment.  The dividend was increased from $0.53 up to $0.54.  That's a rather ho-hum 1.9% increase, although it's in line with the raises from the previous 6 years.  Walmart is a Dividend Champion with 47 consecutive years of dividend increases. Shares currently yield 1.82% based on the new annualized payout.

Since I own 63.415 shares of Walarmt in my FI Portfolio, this raise increased my forward 12-month dividends by $2.54.  This is the 7th dividend increase I've received from Walmart since initiating a position in June 2013.  The total organic dividend growth over that time comes to just 14.9%.

A full screen version of this chart can be found here.

Walmart has historically been a great dividend growth investment; however, dividend growth has slowed markedly over the last 7 years.

Of the 27 1-year periods since 1992, Walmart's year over year raises have ranged from 1.9% to 49.5% with an average of 15.1% and a median of 14.7%.

Of the 23 rolling 5-year periods over that time, annualized dividend growth has ranged from 2.0% to 24.0% with an average of 14.7% and a median of 16.9%.

Of the 18 rolling 10-year periods since 1992, annualized dividend growth has ranged from 6.0% to 20.6% with an average of 15.5% and a median of 18.0%.

The 1-, 3-, 5-, and 10-year rolling dividend growth rates since 1992 can be found in the following chart.  

A full screen version of this chart can be found here.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

Walmart's 5-year average forward dividend yield is 2.48% which corresponds to a share price of $87 based on the new annualized payout.  

I consider the fair value range based on dividend yield theory to be the 5-year moving average yield +/- 10%.  That gives a fair value range of $79 - $97 and suggests that shares of Walmart are trading well above the upper end of fair value.

Using a multiple analysis, shares of Walmart seem expensive, but not exorbitantly so given the quality of the business.  Based on FY 2021's estimates of $5.21 EPS and FY 2022's estimate of $5.56, shares of Walmart are trading at 22.8x and 21.3x, respectively.  Walmart is also currently trading at a 12.9x EV/EBITDA multiple.

A quick estimate of the future returns that Walmart will generate can be taken by adding the current dividend yield to the earnings growth rate and then adjusting for the likely change in multiple.  That gives a return estimate of 5.1% plus 1.8% for a total of 6.9% before accounting for valuation changes.


Wrap Up

This raise increased my forward dividends by $2.54 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my FI Portfolio's current yield of 2.86% this raise is like I invested an extra $89 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way.  

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

I've now received 11 raises from 11 of the 54 companies in my FI Portfolio increasing my forward-12 month dividends by $90.05.

My FI Portfolio's forward-12 month dividends are $8,019.27.  Including my FolioFirst portfolio's forward dividends of $101.44 brings my total taxable accounts dividends to $8,120.71.  My Roth IRA's forward 12-month dividends are $658.43.  My Rollover IRA's forward dividends are $2,395.36.  Across all accounts I can expect to receive $11,174.50 in dividends over the next year.

If you happened to catch that this raise marked a milestone for our main FI Portfolio.  Our forward 12-month dividends crossed over $8,000 for the first time ever which I'm pretty stoked about.  The next milestone is going to be $9,000, but given some likely/possible changes it might be awhile before we cross that mark.

I've also started compiling dividend data on many of the companies that I own or would like to own.  Walmart's can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of Walmart?  Did you feel that dividend increase was a bit on the low side?

Please share your thoughts below.