The wealth-building power of compound interest will never cease to amaze me. It's a story of patience and attention to detail, where small, short-term differences add up to massive divergence over decades. And in the end, the biggest winners don't always deliver the fattest share-price returns.
Retail giant Wal-Mart (NYSE:WMT) has traded largely sideways for more than a decade. But the company never stopped boosting its dividends on an annual basis, so the effective yield is going places:
Wal-Mart has ascended from an insignificant yield of less than 1% to a meaty 2.6% in just a few years. Without these payouts, the stock would barely have beaten its peers on the Dow Jones Industrial Average (DJINDICES:^DJI), but reinvested dividends helped shareholders more than double the Dow's long-term returns.
The company's profit margins may be thin, but they are remarkably consistent and always positive. Many major retailers are losing their grip on long-term profits right now and would sell their souls for a taste of Wal-Mart's stability.
Best Buy (NYSE:BBY) is giving up on the big-box store concept that Wal-Mart perfected and is battling an onslaught of online retailers in the crucial electronics segment. J.C. Penney (NYSE:JCP) saw its mall-cap concept falter and brought in a retail superstar to right the ship, but none of new CEO Ron Johnson's turnaround plans have borne fruit. And through it all, Wal-Mart just keeps ticking along with net margins between 4% and 5%. It's a beautiful thing to watch.
When your company pulls in some of the world's largest annual revenues, it doesn't take much of a margin to create massive profits and power juicy dividends. And that's exactly what the Waltons are doing.
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