* Increase of 8.9 pct after nearly 21 pct hike last yr
* Dividend payout amounts to roughly $5.52 bln
* Shares down 0.4 pct in afternoon (Adds analyst comments, graphic; updates stock activity)
By Jessica Wohl
March 1 (Reuters) - Wal-Mart Stores Inc raised its annual dividend by 8.9 percent on Thursday, as momentum in the company's key Walmart U.S. chain has rebounded.
The increased payout comes as the world's largest retailer works on balancing its need to invest in growing its business with the desire to attract shareholders who have seen Wal-Mart miss out during the broad market rally.
"Part of the reason that people own the stock is that it pays a dividend," said Consumer Edge Research analyst Faye Landes. Wal-Mart wants "to have a nice payout, but they also feel that they have other places to put their capital."
Wal-Mart said its board approved a dividend of $1.59 per share for fiscal 2013, which ends next January, up from $1.46 last year. That equates to paying about $5.52 billion to shareholders.
The family of founder Sam Walton stands to get about half of that payout, as it owns close to 50 percent of Wal-Mart's outstanding shares through various entities.
Wal-Mart has been a big buyer of its shares, spending $6.3 billion on buybacks during fiscal 2012.
Wal-Mart has raised its payout every year since it first declared a dividend of 5 cents per share in 1974. The latest increase comes after a 20.7 percent hike a year ago.
Shares of Wal-Mart, a component of the Dow Jones industrial average, were down 0.4 percent at $58.84 after rising to $59.42 earlier in the day. This year, shares of Wal-Mart fell 1.1 percent, while the Dow rose 6 percent, through Feb. 29.
Wal-Mart has high expectations for the current fiscal year, with the core Walmart U.S. business "back on track," Chief Executive Mike Duke said in a statement.
Walmart U.S. posted its second straight rise in quarterly same-store sales last week, and traffic in the stores rose for the first time after six quarterly declines.
Wal-Mart continues to invest in areas such as e-commerce, where it trails market leader Amazon.com Inc, and needs to cut costs to keep its prices low in the United States. Wal-Mart's international business is still growing and the Sam's Club warehouse chain has done well.
The dividend increase would bring Wal-Mart's dividend yield up to 2.69 percent based on Wednesday's closing price of $59.08 on the New York Stock Exchange.
While that would keep it among the middle of the pack of the 30 components of the Dow Jones industrial average, it would continue to outpace yields of some other major U.S. retailers. Target Corp's dividend yields 2.12 percent, and Macy's Inc's yields 2.1 percent.
Target, Macy's and other U.S. chains reported February sales on Thursday, and most of them did well.
Wal-Mart's new dividend level is "appropriate," for the company, which has "terrific cash flow," said Raymond James analyst Budd Bugatch.
Wal-Mart's free cash flow fell to $10.7 billion last year from $10.9 billion a year earlier, as capital expenditures outpaced its growth in net cash from operating activities.
Bugatch, who recently downgraded Wal-Mart shares to "market perform," noted that the 8.9 percent dividend increase is above the rate of earnings growth Wal-Mart forecast for the year. Wal-Mart expects earnings per share to rise about 4 percent to 8.4 percent in 2013, to $4.72 to $4.92 per share.
The dividend will be paid in quarterly installments of 39.75 cents per share, with the first payment on April 4 to shareholders of record as of March 12.
Wal-Mart said that it returned $11.3 billion to shareholders through dividends and share buybacks last year. As of Jan. 31, it had $11.3 billion remaining under a $15 billion share repurchase plan announced in June. (Reporting by Jessica Wohl in Chicago; Editing by Gerald E. McCormick, Dave Zimmerman)