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Published: June 25, 2010
Today's topic of discussion in the Penny
Sleuth is none other than Wal-Mart... I know, hard to
believe. But don’t be shocked that you’re about to read about
one of the world’s biggest blue chips in your source for
small-cap stocks – after all, shares of this retail behemoth are
presenting some unique opportunities for investors this summer
as long as its share prices continue to tumble.
Let me explain...
For many people, this stock market drop is scary. No one likes
when stocks go down. And for the most part, neither do I. But
there’s another side of the story if you’re interested in income
investments...
Sure, the S&P 500 has fallen -10%. But its dividend yield has
jumped +20 basis points, to 2.05%. That’s a huge jump in less
than a month. We’re seeing many borderline yields - the ones too
small to mess with - come back into our potential investment
range.
Let’s use Wal-Mart Stores Inc (NYSE: WMT) as an example.
Wal-Mart is one of the safest bets on all of Wall Street. It may
not go straight up, but it’s certainly safer than most retail
plays. And if you could collect a reasonable dividend payment,
it’d be worth holding through any market. Unfortunately, it just
isn’t that large of a payer.
But as the broad market continues to decline, Wal-Mart’s
relative payout is looking more and more attractive. After all,
the company’s share price is an afterthought if you can cash in
a respectable dividend. So as shares of Wal-Mart continue to
drop (they’re already down more than -4% in the last quarter),
the cash payouts collected by shareholders continue to become a
larger percentage of your initial investment.
If this trend continues, we may be able to swoop in and pick up
shares of Wal-Mart and lock in a dividend yield higher than it’s
ever been before.
We aren’t there yet. And this isn’t necessarily a buyer’s market
just yet. But as we enter a period of market stagnation, which
we expect will happen in coming months, we might be able to lock
in WMT with a yield approaching 3%. I’ll let you know if that
time ever comes.
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As you can see in the chart, higher dividends with lower
stock prices can make all the difference. 2.4% is the highest
dividend yield WMT has ever paid out – and incidentally, the
stock’s price is at the highest level in history as well. Those
two factors mean that any drops in Wal-Mart’s price will deliver
a materially greater impact on the company’s yield.
But as attractive as Wal-Mart may be, I think that some of the
ignored dividend plays on the market right now already offer
impressive opportunities for the investors who know about them.
-- Jim Nelson
Managing Editor
Penny Sleuth |
