Watch Out for Big Gains From This Big Retailer

As the economic recovery gets back on track, the world's largest retailer, Wal-Mart (NYSE: WMT  ) , is trying to give as much as it can to its shareholders. So notwithstanding eight straight quarters of disappointing U.S. same-store sales, the 'Mart is buying back shares worth nearly $15 billion in an attempt to woo shareholders -- and investors.

Cashing in
Wal-Mart has already spent $12.9 billion on share repurchases since last year and raised its dividend 21% to $1.46 a share. However, those efforts have had little or no impact on shares as sagging same-store sales and weakness in its apparel business have weighed on investors' sentiments. In all likelihood, the repurchase is an attempt on Wal-Mart's part to turn those sentiments in its favor.

At its current size, Wal-Mart can and should be considered a bellwether not only for its industry but also for the economy in general. Although the buyback should help push up EPS, it could also be a useful tool to use excess money, since the company is in a strong financial position.

Despite flagging U.S. sales, Wal-Mart has still been recording profit growth, driven by the strong results of its international operations, with Brazil, China, and Mexico experiencing rapid gains. Back home, the scenario isn't as pretty. With gas prices soaring, budget-conscious shoppers have chosen to frequent cheaper alternatives such as Family Dollar (NYSE: FDO  ) and Dollar General (NYSE: DG  ) .

Foolish bottom line
The share buyback and dividend increase don't mean Wal-Mart is turning away from further expansion efforts. The company has recently upped efforts to correct slumping same-store sales, and it hopes to open a hoard of smaller stores across the States. If all goes as planned, the company may have brighter times ahead. For now, as an investor, you should make the most of the expected rise in EPS and dividends.  

Fool contributor Shubh Datta doesn't own any shares in the companies mentioned above. The Motley Fool owns shares of Wal-Mart Stores, and Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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