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

Walmart Inc. (NYSE:WMT) will increase its dividend from last year's comparable payment on the 3rd of January to $0.56. This takes the annual payment to 1.7% of the current stock price, which is about average for the industry.

See our latest analysis for Walmart

Walmart's Earnings Easily Cover The Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. The last payment was quite easily covered by earnings, but it made up 112% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Looking forward, earnings per share is forecast to rise by 46.2% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 31% by next year, which is in a pretty sustainable range.

Walmart Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the dividend has gone from $1.59 total annually to $2.24. This works out to be a compound annual growth rate (CAGR) of approximately 3.5% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Walmart May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. However, Walmart has only grown its earnings per share at 4.1% per annum over the past five years. Growth of 4.1% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On Walmart's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Walmart's payments are rock solid. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here