Battling Big Players Not New for Walmart

As Walmart (ticker: WMT) wades into e-commerce, the future of its stock and dividend is being debated.

The answer may fall in large part to a competitor: e-commerce megalith ( AMZN). And literally, founder and CEO Jeff Bezos — already the world’s richest man at $144 billion — prides himself on his relentless drive to take over all of commerce.

So far, Walmart’s dividend story “has been a great success for the company,” says Rick Weitz, partner and senior portfolio manger with Cornerstone Asset Management in Winchester, Virginia.

Walmart is a member of American dividend royalty. Every year since 1974 — when Walmart declared its first annual disbursement of 5 cents per share — investors have enjoyed non-stop increases, bringing the tally up to 44 years. The dividend now stands at $2.08 per year, up a very slight 4 cents from 2017, but still up.

[See: 7 Monthly Dividend Stocks for Steady Income.]

Weitz points out that over the past decade, Walmart’s sales have grown 12.5 percent and earnings per share by 45 percent.

“The stock price is up a modest 52 percent, but dividends have expanded 119 percent,” he says. “The company has done a decent job of navigating the company life cycle to its current mega-cap, blue chip, dividend paying position. We anticipate that to continue, though we think the next 10 years will most likely not see the same magnitude of growth in the dividends paid.”

That seems directly linked to Walmart preparing to scale the next slope of the e-commerce mountain, which may prove no easy task. Breaking its stock performance down into smaller chunks, gains over the last five years have just topped 12 percent. More alarming: the 23 percent slide since late January. Then again, it’s up almost a third since the start of 2016. These numbers prove more confusing to read than a sales flyer on Black Friday weekend.

Turning to the forecasts of major analyst firms, things get clearer, though not much. Right now, 11 of them classify WMT as a “strong buy” but another 13 call it a “hold.” Clearly, the jury remains out as to whether Walmart can continue to grow with its predominant brick-and-mortar base.

Yet Walmart isn’t exactly sitting back and waiting for things to shake out.

“As Amazon increases their convenience with faster delivery times, Walmart is keeping pace by ramping up their own e-commerce operations,” says Julian K. Saint Clair, assistant professor of marketing at Loyola Marymount University in Los Angeles. “This effort fits well with Walmart’s core competency in logistics [and] distribution.”

And if Bezos is the boogie man, Walmart has faced down such foes in the past and won without blinking. In the 1980s, Costco Wholesale Corp. ( COST) began to emerge as a retail warehouse sales champion: In fact, it created the concept. But did the late Sam Walton panic? Not a chance. Walmart slugged its way back by creating Sam’s Club in 1983.

Still, Costco stock is up 11 percent in 2018 — perhaps owing in part to Costco basing its entire business model on a store experience that’s less easy to displace by internet-only retail.

[See: 7 High-Quality Dividend Stocks to Buy.]

“WMT’s significant e-commerce investments have helped sales, but negatively impacted margins,” says Christopher Trompeter, founder and chief operating officer at Tradition Capital Management in Summit, New Jersey. “Meanwhile, Costco has been able to increase its sales and earnings. WMT will need to translate strong comp store sales growth into improving profits for its stock to outperform.”

Still, anyone who’d count Walmart out — whether against Costco, Amazon or anyone else — needs to strongly reconsider.

“One key strategy Walmart uses to compete with Amazon is through the ‘omnichannel’ retail strategy, which requires the perfect coordination of Walmart’s technology, infrastructure and physical real estate,” says K.C. Ma, director of the George Investments Institute at Stetson University in DeLand, Florida.

Aside from a few Amazon bookstores scattered here and there in the U.S., Amazon simply has a limited brick-and-mortar presence.

What’s more, the jury is still out as to whether Amazon’s acquisition of Whole Foods was a smart move. Despite Amazon’s dropping of prices, the grocer still retains the pejorative reputation of “Whole Paycheck.” That nickname came from sticker-shocked shoppers who’ve fled for the likes of Trader Joe’s — or as it turns out, the grocery aisles at Walmart.

“With the obvious advantage over the groceries and the deliverable fresh produce and groceries, Walmart can leverage its store density to effectively compete with Amazon on the ‘less e-commerce-able’ products,” Ma says.

“Same-day grocery delivery is the Holy Grail for online shopping,” says Sayan Chatterjee, professor of design and innovation at Case Western Reserve University’s Weatherhead School of Management. “Walmart can leverage its own trucking fleet and a store within 5 miles of 70 percent of the U.S. population. It doesn’t hurt that Walmart is the largest, and most profitable, grocer in the United States.”

Ma endorsed Walmart’s payout evolution in the tough retail landscape.

[See: 20 Awesome Dividend Stocks for Guaranteed Income.]

“Even with significant margin pressure, Walmart is playing it smart,” Ma says. “Instead of paying out fat dividend increases, the company has started a share buyback campaign that keeps dividends contained. Even against all odds, Walmart still delivers.”

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