Dear Mr. Berko: I invested $10,000 and bought 130 shares of Wal-Mart at $74 two years ago on a recommendation from a friend of mine who is an economist with the United Nations. The stock market has done really well, but my Wal-Mart investment hasn’t moved. It seems I made a bad choice. Wal-Mart stock is hardly higher than my purchase price, and other issues have increased more than 50 percent in the past two years. What’s wrong with it? Should I sell? My friend says Wal-Mart is being held down by the government’s demand for higher wages.
— VT, Wilmington, N.C.
Dear VT: The U.N. is a cesspool of political freeloaders who are there to butter their own nests. And I suspect your friend’s skill level as an economist precludes his employment by a legitimate entity.
In 2004, Wal-Mart (WMT-$76) traded in the low $60s, generated $220 billion in revenues, earned $1.50 a share and paid a 30-cent dividend. Since then, revenues have more than doubled, to $480 billion, and share income has more than tripled, to $5.15. And as WMT’s share price has grown at a compounded rate of 2.3 percent, the Dow Jones industrial average has doubled, to 17,000. When most companies reach a certain revenue size, share values usually hit a wall for a decade or longer, and their boards react by implementing attractive dividend policies. Between 2002 and 2011, WMT traded between $40 and $64. WMT was perceived as too huge to be flexible, too massive to maintain momentum and too sizable to innovate, though revenues continued to grow. However, WMT’s 30-cent dividend in 2002 zoomed to $1.92 this year, an impressive sixfold increase. Though the share performance has been stuffy, its dividend and earnings growth deserve five platinum stars.
Most observers believe that a $1-an-hour wage increase is unlikely and would be ruinous. And here’s why. WMT has 2.3 million employees, and 1.3 million could have their wages boosted by $1 an hour. Keeping the math simple and assuming a 40-hour workweek, that would increase WMT’s labor costs by $50 million a week. So a $1-an-hour wage hike would increase WMT’s costs by $2.5 billion next year, which would be 15 percent of this year’s $167 billion net income. And with net profit margins of 3.5 percent, WMT would need an additional $73 billion in revenues to cover that increase. No matter how you stuff the goose, it ain’t chopped liver. But it’s unlikely to happen.
