Shares outstanding
Shares outstanding have been steadily decreasing which is a good sign. I’d like to see this trend continue.
Valuation
Morningstar currently rates Wal-Mart Stores, Inc. (NYSE:WMT) as a 3-star stock as it’s currently priced around its estimated fair value of $74. For Morningstar to rate Wal-Mart as a 5-star undervalued stock, the price would have to fall below their “consider buy price” of $59.20.
I calculate my own target prices and came up with $64. To see the details of this calculation, read my full analysis of Wal-Mart.
Other investment options in the same industry
I found Costco Wholesale Corporation (NASDAQ:COST), Family Dollar Stores, Inc. (NYSE:FDO), and Target Corporation (NYSE:TGT) as strong dividend growth candidates in the same industry using the May 31, 2013, US Dividends Champions list.
Costco Wholesale Corporation (NASDAQ:COST) has the lowest payout ratio and highest estimated five-year average annual growth rates, but its dividend yield is well below my minimum entry yield of 2% to 2.5%. Its dividend growth rates in the past have been good and it looks like it’ll be able to continue strong dividend growth based on the low payout ratio and strong estimated five year annual growth of 13.4%.
Family Dollar Stores, Inc. (NYSE:FDO) is in a similar situation as Costco. It’s a good dividend growth stock, but the entry yield is too low for me right now. Family Dollar Stores has a more impressive dividend streak with 37 years of consecutive dividend increases versus Costco’s 10 years. Like Costco, I think Family Dollar Stores, Inc. (NYSE:FDO) will be able to continue strong dividend growth and its most recent increase of 23.81% would support this.
Target Corporation (NYSE:TGT) has the longest dividend streak and looks to have the best overall past dividend growth rate. With the recent 20% dividend increase, good estimated earnings growth of 11.6%, and a low payout ratio of 33.8%, it looks like this impressive dividend growth will continue.
Target’s current yield is just over 2%, so I would consider investing if it was reasonably cheap. Unfortunately, this is not the case right now. Morningstar currently has Target’s fair value as $58, and its five star “consider buy price” is $40.60. I will be staying on the sidelines for now as the current price is well above these levels.
In the table below you can see that all four companies are currently yielding close to their five-year average, which suggests that none of them are value priced.
When I look at these four companies, I get roughly the same conclusion for all of them. They all look like good dividend growth candidates, but none of them are undervalued which prevents me from investing.
Conclusion
Wal-Mart has a strong competitive advantage and a wide economic moat. It makes more and more money each year without fail and has strong dividend growth fundamentals. This is exactly the type of stock I’d love to invest in. I think dividend growth will be a little bit higher than earnings. At current prices, Wal-Mart Stores, Inc. (NYSE:WMT) is too rich for me, but if the price fell below my target price of $64, I would consider investing.
The article Wal-Mart Dividend Stock Analysis: A Buy at $64 originally appeared on Fool.com and is written by Michael Weber.
Michael Weber has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool owns shares of Costco Wholesale. Michael is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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