Monday, February 3, 2014

Why Wal-Mart Won't Be In KDK Fund (for now)

One of the reasons why KDK Fund is being created is that there are companies that the fund does not want its capital to go to., One of those companies is Wal-Mart. The main reason that KDK Fund will not be investing in Wal-Mart is due to the company's employee wage policy. Recently, Wal-Mart's wage policy weaknesses have started to show up and they are affecting earnings for investors in a negative way.

There is a Yahoo Finance story (link here) that shows some cracks in Wal-Mart's fiscal situation. In the story, analysts estimate that low income workers make up 20% of Wal-Mart's revenue. Because of this, the recent decrease in food stamp funding by the US Government has negatively affected Wal-Mart's earnings. That tells KDK that the government is subsidizing a percentage of Wal-Mart's earnings. It also means Wal-Mart is depending on other companies along with its own to keep wages at a level so that food stamps are continuously needed. Wal-Mart sees a lower minimum wage as beneficial because it then receives massive amounts of revenue from the US Government covering the costs of groceries that should otherwise be covered by higher wages. Knowing that, KDK feels that Wal-Mart's policy of both paying a lower wage to keep costs down and then pining for US food stamp revenue to boost its earnings is not something to support.

KDK feels that if a company is sufficiently profitable, employees should be at the least given wages that can sustain life without government assistance like food stamps. Wage policies like Wal-Mart's inhibit the value created otherwise for investors. If Wal-Mart and other companies in the same position would execute a better wage policy, it not only would help the workers, it would help lessen the burden put on the US Government and taxpayers. When a company has both employees that are deca-millionaires and employees that require food stamps, KDK Fund knows to stay away.

If Wal-Mart were able to show that all of their employees are given a living wage, the positive effects would far outweigh the minimal loss in dividends or stock appreciation shown to investors. It would now give people that boycott the store to now shop there. Other models within Wal-Mart are genius and do great things for the company.  Fix this and investors like KDK Fund will reassess whether or not Wal-Mart will receive some of its capital. Don't fix it and possibly continue the downtrend.

What would happen if large money sources like pension funds decided to do the same thing and remove their capital from reaching Wal-Mart's balance sheet? Would Wal-Mart change? If you are under a pension fund system, give your rep a call and find out where your retirement funds are going.

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