The Walton’s Love Dividends

by JT McGee

wmt, walmart, dividends, walton family

It’s the subject of documentaries, lawsuits, awe and the world’s largest employer. It’s blue and white, and other than a change to its famous logo just a few years ago, it’s still every bit of the gigantic all-in-one store its customers have come to expect. It’s size, though, extends well beyond the blueprints of each new store and into the pocketbooks of the family that inherited the corporate giant.

According to recent data, the Walton’s own some 1.71 billion shares of Wal-Mart stock in a trust known as the Helen R. Walton Family Group, named after Sam Walton’s wife, the founder of Wal-Mart. \

In total, the trust holds 47.88% of all Wal-Mart shares outstanding, worth roughly $92 billion at present market value. These shares are the sole reason why the Walton Clan owns the quite a position of the Forbes 400 list, with each son and daughter having huge stores of inherited wealth. It is actually Christie Walton, the widow of a Walton son, who is the wealthiest of them all. She’s also the richest woman in the world.

But it appears that more upside is in store for the royal family of retail. Following aggressive expansion around the globe, Wal-Mart’s acquisition-driven takeover of international retail has yet to be rewarded by shareholders. In fact, ten years ago Wal-Mart traded for $50 per share, exactly where it rests today. So, where Wal-Mart may be a better value today than the post-2000 tech bust, investors still haven’t given it the respect it deserves.

Its massive size, though often the reason most people see it to be so dangerous, is just one of the many things that hold the company down. Where smaller firms find avenues for growth even in recession, Wal-Mart’s equity position in consumer spending means its revenues are tied to the mercury in the thermometer for economic growth. It’s fighting the trend with smaller stores, but results are slow to surface.

Knowing that future weakness is virtually guaranteed for a retailer of its size, the company has little room to build shareholder value without 1) buying back itself or 2) maximizing market value by increasing dividend yields. At least partially driven by the Waltons, who have enough shares combined to stymie any potential activist investor, the company recently declared an increased dividend to $1.46 per share, with the first disbursements going out April 4th.

Mmm Dividends

While Wal-Mart stock hasn’t offered any appreciation for eleven years running, the Walton’s are sure to strike it rich in the next eleven years. With annual dividends of $1.46 per share, WMT will return $2.5 billion in wealth to the Walton’s through its aggressive dividend increase this year alone, and given it’s policy for dividend growth, the family will see their wealth grow by $30 billion even if the stock price stagnates for another eleven years.

Just for fun, the Waltons will bring in $2.5 billion in dividend income in 2011. That works out to…

  • $208 million per month
  • $48 million per week (52 weeks to a year)
  • $6.8 million per day
  • $285,388 per hour
  • $4,756 per minute
  • $79.27 per second

Sure is tough being a Walton!

The rejection of the brand abroad of a very much “American” business model, Wal-Mart has a growth policy that is acquisition-exclusive. But at what point does Wal-Mart continue forth with its dividend schedule before finding the shareholder wealth may be best returned by stock buy-backs? Following a buy-back, the Walton’s would quickly rise to >50% ownership, and at that point I forecast Wal-Mart becomes a very basic Retailing Trust. Future model: money in, 90% out, slow growth, marginable reinvestment in the business, and the Walton’s walk away as the highest-dividend income family in the world. (They probably already are!)

Walmart does have a minor competitive advantage in making money with subsidiary Walmart real estate.

P.S. for the liberals: The Walton’s will pay only 15% on their dividend income. 😉

Photo: galaygobi

{ 11 comments… read them below or add one }

Sandy @ yesiamcheap March 21, 2011 at 14:27

Okay, so Walmart stock doesn’t move in one direction or another much, but it’s a stable position that pays dividends. It would still be a decent addition to an investment portfolio that is centered around dividend payments. The Waltons don’t seem to mind it since they are living off those dividends in a style to which I would like to become accustomed. 🙂

And I WISH my taxes were just 15% of my income. But Sam was smart and that’s why this wealth will live for generations.

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JT McGee March 21, 2011 at 18:41

You’re so right, Sandy. Good ol’ Sam Walton was one smart man, first buying into a bank before using his entry into banking to leverage Walmart into the giant that it is. His kids seem to have a good head on their shoulders, too–and I’m thinking they’re just as loyal to the company as their dad was.

Really, Walmart can be beaten into just another “bad corporation,” but it really is a story of the American Dream, from top to bottom.

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DividendPartisan March 22, 2011 at 18:01

I agree Walmart is a great dividend stock. Not sure how I agree with some of their business practices and the way they treat their employees; but yes, it is a good dividend core holding. Thanks for the article.

DivPartisan

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Barb Friedberg March 22, 2011 at 19:52

Actually, tax on dividends is bound to go up in te future. WMT is one of the few remaining individual stocks in our personal portfolio. The appreciation isn’t there recently but the divs are better than interest on our savings.

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JT McGee March 22, 2011 at 23:05

@DividendPartisan – I’d like to see a few studies of the average corporate practices with Walmart included. When pay is involved, they’ve scored quite well, often higher than other “higher-end” retailers, eateries and coffee houses (think Starbucks), among others. There are a few lawsuits against the company, but that doesn’t very much surprise me given it’s size.

@Barbara – Yeah, dividend taxes are supposed to go up in 2013, but I don’t think it’ll happen any time soon as far too many people make far too much money to let Congress get in the way of dividend taxes. The Waltons, for example, could easily put up $3 billion to buy the whole of congress, and still see a net benefit. We shall see…we certainly live in interesting times! I’m with you on the dividends being better than savings, and with Walmart being a pretty solid company, the stock definitely make sense.

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Jon | Free Money Wisdom March 22, 2011 at 23:44

Walmart is a fine example of one of the few strong stocks for dividends. Although I don’t advocate individual stock picks, Walmart would definitely be one of them. Once I max out my roth and 401k, I’ll be picking up Walmart. Hopefully the market crashes, I’ll pick it up at uber bargain prices.

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Paula @ AffordAnything.org March 23, 2011 at 15:39

Walmart is trying to expand its business overseas, in places like China and India. How strongly it will grow in the next decade depends on how successful it is at capturing emerging markets.

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JT McGee March 23, 2011 at 21:59

@ Jon – I like the company for stability and safety, though they probably wouldn’t be on my “must-have” stock list. I still worry a lot about the future of brick and mortar retail, but if nothing else, they’re a great long-term holding. Low beta and great income is a pretty good mix.

@Paula – I’ll be interested to see how they do in emerging markets. They haven’t yet figured out China, and they left Russia pretty quickly. I think they’ve found out by now that the best way to explore new areas around the world is through acquisition and mergers, not by throwing an American business model and store right into a new culture.

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Keith Dennis April 1, 2011 at 20:37

Must be tough to be making $79 per second while you are asleep. Think I am going to raise my consulting rates up to $285,000 per hour and see how it goes!

All of this share talk has led me to point out that even though the shares haven’t grown much lately, Wal mart has been strengthening their business in the meantime. So like you said their value is getting better slowly. My only concern would be the economy and perception of a retailer for stock growth.

The raising of their dividends helps a whole lot to categorize them as slow and steady but it is still a supply and demand basis for the stock rising. Buying back would help a lot! In the end their needs to be more buys than sells for the shares to go up. How long could they keep buying back? At those levels of dividends, probably until they buy all of the shares!

Thanks for the post! Very well written.

Keith

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JT McGee April 4, 2011 at 21:43

@ Keith – Thank you for stopping by. As I said, I’m not a shareholder, mostly because it’s in an industry I don’t particularly love–retail. However, I’ll buy anything if it’s cheap enough. 😉

I don’t see why they couldn’t just keep buying back year after year. Buying back stock is the best way to deliver shareholder value when growth opportunities are lacking, and compared to dividends, the buybacks are at least 15% better (no capital gains taxes!)

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Sergey Kazachenko September 29, 2012 at 11:03

Please don’t abuse the poor apostrophes! One Walton, many Waltons, it’s that simple

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