Wal-Mart Dividends Shareholders

Financial Initiative at Wal-Mart

Introduction

Wal-Mart Stores, Inc. operates retail stores in various formats worldwide. It operates through three segments: Wal-Mart Stores, Sam's Club, and International operations. The Wal-Mart Store segment includes super-centers, discount stores, and neighborhood markets in the United States as well as walmart.com. Sam Walton founded the company in 1962, which is headquartered in USA. Wal-Mart stores Inc. is in the retail industry offering products like Discount stores, neighborhood markets, and super centers. Net Income at the end of fiscal year 2006 was approximately $ 12.19 billion. The International segment includes various formats of retail stores and restaurants, including discount stores, super centers.

Financial initiative of Wal-Mart

The board of directors of the company on March 8, 2007, had given an approval to increase the Company's annual dividend to $0.88 per share. This annual dividend would be paid in equal installments of four in a year. The projected dates of this dividend distribution would be, April 2, 2007, June 4, 2007, September 4, 2007, and January 2, 2008 to holders of record on March 16, May 18, August 17 and December 14, 2007, respectively.

Potential Financial Outcomes of the Initiative

Dividends are that part of the company's net earnings, which has to be paid out to the shareholders in form of the return for upholding risks. Dividends are the source of returns to investors. It has been generally seen that most of the investors evaluate the performance of the company on the basis of the dividend distributed by the company. It is also believed that the dividend carry an informational value with it. Distribution of dividends undoubtedly creates a favorable impression on the shareholders. Overall, there will be a positive impact of this financial initiative (Pandey, 2007). The three expected outcomes of this financial initiative can be discussed in the following heads:

Increased market value of the firm- with the increased dividend the market value of the firm also increases. This is due to the fact that the shareholders get more return than what they have expected. So, their expectations from the company in future rise, which will ultimately lead to an increase in the market value of the firm's shares and assets. An increase in the payout ratio signals the shareholders a permanent or long term increase in the firm's expected earnings (Khan & Jain, 2002). This fact is evident from the company's financial statements where the market value of the firm has raised in previous ten years (Wal-Mart Annual Report 2007).

Increased dividend per shareholder- as a result of this initiative, there is an increase in the dividend per share of the company. The stakeholders are satisfied by the performance of the company and hence, remain loyal towards it. They are also assured of some fixed earnings and capital enhancement. The discontent of the stakeholders can also be avoided who would have sold the stocks due to discontentment (Pandey, 2007). Thus, it also avoids the transfer of control of the company to the outside group. The dividend payout of Wal-Mart has rose from 20% to 30% over the past 10 years. For the year 2006, it was only $0.60, but it rose to $0.67 in the year 2007 (Wal-Mart Annual Report 2007).

Dilution of ownership- with this initiative, the D/P ratio rises. As a result, there may be dilution of both earnings and control for the existing shareholders. Due to low retention of profits, it may become necessary for the company to raise more equity shares in the future, causing an increase in the number of equity shares outstanding and ultimately lowering earning per share and their price in the market (Pandey, 2007).

Most likely outcome of the initiative

The most likely outcome of the financial initiative taken by the company is the increase in the Dividend per Shareholder of the company. It would also give the shareholders a fixed source of earning after some regular intervals. The satisfied customers will remain loyal to the company, thus, resulting in the total increase in the firm's value.

Conclusion

Thus, from the above discussion, it is clear that dividend policy of an organization is the key to its success. The organization should be very careful while designing all its financial and non financial decisions. Due to this financial initiative of the company, it has moved far ahead to its competitors. The image and brand of the company are very popular all over the world. Its shareholders have so much faith in the company that they are not willing to sell their shares. With this goodwill in the market, the company possesses the opportunity to perform much better in every year of its operations.

References

Khan, M.Y. & Jain, P.K. (2002). Financial Management (3^rd Edition). New Delhi: Tata McGraw Hill Publishing Company.

Pandey, I.M. (2007). Financial Management (9^th Edition). New Delhi: Vikas Publishing House.

Wal-Mart Annual Report 2007. Retrieved April 28, 2008, from http://walmartstores.com/Media/Investors/2007_annual_report.pdf

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