Dividends, Buybacks: Short-Term Fix for Walmart, Target Investors
Walmart’s and Target’s Fiscal 3Q16 Performance, Earnings, Outlook
Market reactions to Walmart and Target
Market reactions to Walmart’s (WMT) and Target’s (TGT) earnings releases were very different. Walmart stock rose 3.5% to $59.92 on November 17, 2015. Target stock fell by 4.3% to $69.78 on November 18, 2015. The S&P 500 Food & Staples Retail Index (XLP) (XRT) (VDC) rose 1.4% and 1.6% on November 17 and 18, respectively.
Walmart’s stock price has fallen 29.1% year-to-date. Target’s stock price has fallen 8.1%. This contrasts to an increase of 1.2% in the S&P 500 Index (SPY) and a fall of 0.5% in the Dow Jones Industrial Average (or DIA) over the same period.
Walmart’s stock took a pounding, partly due to the downbeat outlook in the next few years. Compounding investor jitters was news that prominent investor Warren Buffett’s Berkshire Hathaway (BRK.B) has recently shed some of its holdings in Walmart. Buffett’s 60.4 million shares position in Walmart was curtailed 7% in the third quarter, as disclosed by 13-F filings.
Dividends
Mitigating some of the downside are the healthy dividend yields these stocks are offering. Target and Walmart were yielding 3% and 3.2%, respectively, as of November 18, 2015. Both companies are dividend aristocrats. Costco (COST) was trading at a dividend yield of about 4%.
Walmart and Target have paid out $4.7 billion and $1 billion, respectively, in dividends to shareholders in the first three quarters of the fiscal year.
Share repurchases
Spurring the upside in Target’s EPS (earnings per share) in fiscal 2016 is the company’s share buyback program. In the first three quarters of fiscal 2016, Target repurchased 77.2 million shares worth $5.3 billion at an average price of $68.86. This included 12.1 million shares repurchased in fiscal 3Q16 for $942 million. In fiscal 4Q16, the company could spend an additional $924 million on share buybacks.
Walmart’s repurchased shares worth $1.7 billion in the first three quarters of the current fiscal year include 6.1 million shares at a cost of $437 million in fiscal 3Q16. In October 2015, Walmart authorized a new $20 billion share buyback plan to be deployed over two years.
These initiatives should provide some support to EPS for both Walmart and Target.
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