Have Another Look at this Big Box

07/09/2012 8:00 am EST

Focus: STOCKS

Gordon Pape

Editor and Publisher, The Income Investor and the Internet Wealth Builder

The global recession has taken its toll on retailers of every stripe, even some of the legends in the business. But some are coming around again and kicking off good dividends to pay for investors' patience, writes Gordon Pape of Internet Wealth Builder.

Walmart (WMT)—which just celebrated its 50th year in business—hardly needs an introduction. It has it all. It has dominated the discount market for many years, and will continue to do so for the foreseeable future.

In keeping with my advice to buy stocks in companies that can continue to generate profits in a weak economy, I am adding the shares to our Recommended List.

Recently, CEO Mike Duke said, "Walmart is the best-positioned global retailer in the world today." It may sound boastful, but he's right. No one else is in the same league.

Why do people flock there? Because it's cheap, of course. Walmart consistently manages to undersell everyone else. The company employs more than two million "associates" worldwide, and claims to serve more than 200 million customers a week.

And while Walmart may represent the values of Middle America, it has become an international retailer, with 10,130 stores under 69 different banners in 27 countries.

In mid-May, the company reported results for its 2013 fiscal first quarter (to April 30). Earnings from continuing operations came in at $1.09 per share. That was up from 96 cents the year before, and ahead of the company guidance of between $1.01 and $1.06 per share.

US comparable-store sales increased by 2.6%, while sales at its Sam's Club stores were up 5.3%, not including fuel. Those are healthy increases for a well-established company in a weak economy.

Consolidated net sales were $112.3 billion, an increase of 8.6% from last year. Walmart ended the first quarter with free cash flow of $3.1 billion and had cash in the bank of $8.1 billion. Return on investment (ROI) for the trailing 12-month period was an impressive 18.1%. From a financial perspective, this is a very sound company.

The share price has moved higher in recent months, bucking the trend in the US market. However, at about 14 times anticipated fiscal 2013 earnings, it does not appear to be out of line.

In March, the company announced a 9% dividend increase, bringing the annualized payout to $1.59 a share. Yielding 2.4%, Walmart is a Buy for defensive investors.

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