The board of Wal-Mart Stores, Inc. (WMT) has authorized the repurchase of $15 million worth of shares. This new buyback program will replace the previous $15 billion program, which was announced in Jun 2011.
In the recently reported first-quarter 2014 results, announced in May 2013, the retail giant repurchased 30 million shares worth approximately $2.2 billion. Walmart now has approximately $712 million remaining under the 2011 share repurchase authorization.
The share buyback program helps the company reduce outstanding share count, thereby increasing earnings per share and return on equity. Apart from bolstering shareholder value, this strategic move will also lift the relatively undervalued share price.
In addition to share repurchases, Walmart regularly increases shareholder wealth in the form of dividends and has increased its dividend every year since Mar 1974. During the first quarter, the company paid $1.6 billion in dividends.
Most recently, in Feb 2013, Walmart announced a dividend hike of 18% for fiscal 2014 to $1.88 per share over last year's dividend of $1.59 per share. Prior to that, in Mar 2012, the company’s board hiked its annual dividend by 8.9% to $1.59 per share.
Returning shareholder value not only reflects Walmart’s ability to increase its free cash flow per share at an impressive rate, but also its confidence in its fundamentals. Walmart has returned nearly $100 billion to its shareholders through dividends and buybacks during the last 10 years.
Overall, we are impressed with the company’s initiatives to reduce operating expenses. In addition, the company has strong international presence and has been expanding its e-commerce business. However, rising gas prices, delayed income tax refunds and higher payroll taxes might hurt consumer spending going ahead. Also, Walmart's actions and operations are often subject to strict media scrutiny. Currency headwinds and continued economic pressures also keep us on the sidelines. Currently, Walmart has a Zacks Rank #3 (Hold).
Some other supermarket retailers in the industry worth a look are Ingles Markets, Inc (IMKTA), The Fresh Market Inc. (TFM) and The Kroger Co. (KR). While Ingles holds a Zacks Rank #1 (Strong Buy), Fresh Market and Kroger hold a Zacks Rank #2 (Buy).
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