Investing in Walmart stock is a smart choice for several reasons. It appears to offer a good return, with a solid PE ratio and a good but not excessive dividend. Management seems to know what it is doing, and Walmart seems to be positioning itself to be an efficient and successful company worldwide.
Walmart seems to promise a good return partly because its valuation is reasonable. It offers a low forward PE ratio of about 12, as of halfway through September 2010. The PE ratio of a stock is the price a share sells for divided by the amount of money it earns per share in a year. Twelve is a low PE, for a company of Walmart’s size and durability. Therefore, an investor might be buying WMT cheap, in terms of earnings.
Walmart also offers a reasonable and growing dividend that yields about 2.3 percent this September. According to charts at msn’s moneycentral site, Walmart’s dividend was 15 cents in December of 2005. It is now 30 cents, so it has doubled in five years. Nicely growing dividends make Walmart attractive, though of course there is no way to know for certain what the dividend will be in the future.
Excellent management also makes Walmart stock a good buy. Right now, Walmart plans expansion with smaller stores in cities like Detroit, Chicago, and Los Angeles, where budget shoppers are under-served. At the same time, Walmart is expanding into growing consumer markets like Mexico and China. Management seems to be trying to see beyond the current noise and read clear signals about what future shoppers will want and need. Walmart management plans for the long term.
Dullness is another virtue of Walmart stock. Stocks that are fantastically popular can become unbelieveably unpopular. Walmart is in the Dow Jones Industrials, so it is not a small-cap mystery. At the same time, it lacks the glamour of an Apple or a Google. Apple and Google are great companies, but they are excessively well known. Walmart is a dark horse that might possibly win the capital appreciation race.
As a stock, WMT has done essentially nothing for the last ten years. As a company, Walmart has kept up with the times, and then some. Walmart might be a very good stock to own when people realize what a smart company this is. Meanwhile, Walmart looks safe and steady, not volatile, not showy, churning out its dividend, year after year. For prudent investors, Walmart looks like a good buy.