Investing in dividend-paying stocks has its virtues. The payments can provide a regular source of income through various economic times. But you have to dig deeper to determine if the company can sustain its payouts. If they’re tenuous, that could signal woes for the firm.
Turning this analysis to individual stocks, two venerable retailers, Walmart (NASDAQ: WMT) and Macy’s (NYSE: M), both pay dividends.
Will AI create the world’s first trillionaire? Our team just released a report on the one little-known company, called an “Indispensable Monopoly” providing the critical technology Nvidia and Intel both need. Continue »
Which one, if any, should dividend-seeking investors consider buying?
Most people know Walmart for its low-priced inventory of products and ubiquitous retail presence. Its Walmart and Sam’s Club stores and multiple retail websites serve more than 270 million customers globally each week.
It’s not just a popular shopping destination. Walmart also produces a healthy profit. Fiscal third-quarter operating profit, adjusted to remove foreign-currency translation effects, grew 8% year over year to $7.2 billion. The period ended on Oct. 31.
It produces enough profit to invest in the business and also pay a generous dividend. Walmart generated free cash flow (FCF), or operating cash flow less capital expenditures, of $8.8 billion for the prior nine months. That’s well in excess of the $5.6 billion it pays out in dividends.
Certainly, Walmart can afford its dividends. The board of directors also has a history of raising them, doing so annually for more than 50 straight years, making the company a Dividend King. That’s certainly quite a feat.
However, at the current dividend rate, the stock’s 0.7% dividend yield is lower than the S&P 500‘s (SNPINDEX: ^GSPC) 1.1%. That’s more a reflection of the stock’s strong performance over the past year. Walmart stock trades up 169% (compared to the S&P 500’s 70% gain) over the past three years.
Many people know the Macy’s brand, but the company has been dealing with challenges lately. Management implemented its turnaround plan, which includes revamping and closing some Macy’s stores, changing the product assortment, and focusing on its luxury brands (Bloomingdale’s and Bluemercury).
There’s evidence that its plan has proven effective, albeit it’s in the early days. The company’s fiscal third-quarter same-store sales (comps) increased 3.4%. This figure measures owned-plus-licensed-plus marketplace sales. These include online sales and sales by departments licensed to others. The quarter ended on Nov. 1.
