Wal-Mart Stores Inc said it is increasing its annual dividend nearly 21 percent, citing its ability to generate cash in a fiscal year that disappointed investors with weak U.S. sales.

Wal-Mart said its board approved a dividend of $1.46 per year in fiscal 2012, which ends next January, up from $1.21. That translates to about $5.2 billion paid out to shareholders.

The move would bring Wal-Mart's dividend yield to 2.81 percent, based on its closing stock price of $52.01 on Thursday on the New York Stock Exchange.

Like many larger companies, Wal-Mart's dividend is an important factor for its shareholders, as the stock has shown little appreciation over the past several years.

Shares fell 3.1 percent a little more than a week ago when the company posted its seventh consecutive quarterly decline in sales at U.S. stores open at least a year and said it will take more time than it thought to turn those sales around.

The company generated $10.9 billion in cash in the year ended January 31, down from $14.1 billion a year early.

The stock has been range-bound and the dividend has been one of the biggest sources of return ever since we came out of the (economic) downturn, said Matt Arnold, analyst at Edward Jones, who has a hold rating on the stock.

The dividend yield is higher than the roughly 2.27 percent average yield for the Dow Jones Industrials Average <.DJI> and is higher than that of many retailers. Rival Target Corp's yield is about 1.91 percent, for example.

Arnold noted that the dividend is closer to that of a large consumer products company, such as Procter & Gamble Co

, which has a yield of about 3.09 percent. The consistent dividends provided by consumer staples companies are a key factor that makes them attractive to some investors.

The 10-year U.S. treasury bond currently trades at a yield of about 3.56 percent.

The first quarter dividend will be payable on April 4 to shareholders of record on March 11.

Wal-Mart said last week that it had about $4.8 billion remaining on its current stock repurchase authorization. Between dividends and repurchases, the company returned $19.2 billion to shareholders last year.

Shares were up 49 cents or 0.9 percent at $52.50 in after-hours trading.

(Additional reporting by Phil Wahba, editing by Gunna Dickson and Matthew Lewis)

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