When companies increase dividends, especially the way Wal-Mart did today with an announced 20.6% increase, the notion is often: Investors are being paid to wait – in this case for the turnaround.
But digging into the guts of the company’s numbers, using algorithmic data from Analytixinsight, it would appear investors may have quite awhile.
Confirming what we already know, the data shows that based on a comparison of financial results with peers, Wal-Mart sales and earnings growth rate “suggests a lack of strategic focus and/or lack of execution success.”
More interesting, according to the data:
Based on its return on capital of 12.25%, which is merely in line with its peers, Wal-Mart doesn’t appear to have any particular operational advantage. (The good news – the return is more than double its cost of capital.)
Little bang for its investing buck: Wal-Mart employs a relatively high amount of capital while generating profit margins of 3.6% -- only average among its peers.
On the gross margin front, at around 25% — it's low relative to peers — Wal-Mart’s strategy either isn’t differentiated or it has pricing constraints. And while its bottom-line performance is better than peers, it’s likely because of tight cost controls rather than improved sales; both sales and earnings growth lags its peers.
Oh, and about that dividend increase: Based on the numbers, according to Analytixinsight: While Wal-Mart’s current margins and cash flow levels are all relatively good compared to peers, its debt-to-book equity average (a metric used by many analysts) over the past three years is higher than its peers, “raising concern about the use of cash for possible dividend increases.’
Putting that into English: It appears the big dividend may have been a sign of weakness out of pressure to do … something.
Not generally a good sign.
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