Saturday, January 25, 2014

Stock Bought: WMT

I made three purchases during this past week. My first purchase occurred on Tuesday, when I bought shares of Wal-Mart Stores (WMT), the largest retailer in the world by revenue. My most recent previous purchase of WMT was in October 2013 and I wrote an article about it for Seeking Alpha at that time.

I think WMT is fairly valued to slightly undervalued at the current price. It has a P/E of 14.5 (vs. a 5-year historical average of 14.5), P/S of 0.5 (vs. 0.5), P/B of 3.3 (vs. 3.1), and dividend yield of 2.5% (vs. 2.1%). Using a Dividend Discount Model with a dividend growth rate of 10% (lower than the 5-year historical rate) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $83.16. Morningstar gives a fair value of $80.00 and a 4-star rating. The average of those two estimates is $81.58, which implies a 7.3% margin of safety at my purchase price.

I bought 20 shares of WMT at the price of $75.60 per share plus commission, giving me a 2.48% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $9.40 from this purchase, which will add a total of $37.60 to my annual dividend income. This purchase was made in my Roth IRA using rollover money. I now have a total of 45 shares of WMT and I will receive combined quarterly dividends of $21.15. My forward 12-month dividend total increases to $4,071.

3 comments:

  1. It seems to me like Walmart is back to fair value here, with the dividend increase likely next month.

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    Replies
    1. SB: I agree, WMT is at or below fair value right now, making it a reasonably attractive investment. This purchase helps bring my WMT position close in weight to my TGT position, giving me some balance in the retail area.

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