Updated on November 2nd, 2024 By Felix Martinez
The Dividend Kings are a selective group of stocks that have increased their dividends for at least 50 years in a row. We believe the Dividend Kings are among the highest-quality dividend growth stocks to buy and hold for the long term.
With this in mind, we created a full list of all the Dividend Kings. You can download the full list, along with important financial metrics such as dividend yields and price-to-earnings ratios, by clicking the link below:
Walmart Inc. (WMT) is a Dividend King, and an American retail giant.
In 1974, Walmart paid its initial dividend of $0.05 per share, which has been raised annually for 51 consecutive years, making it a Dividend King. Recently, various retailers have faced challenges due to competition from internet retail, spearheaded by Amazon (AMZN).
Nevertheless, by adapting, Walmart has demonstrated its ability to thrive in a rapidly changing environment. The company has made substantial investments in its e-commerce platform. Unlike many other retailers, Walmart has shown it can compete with Amazon.
This article will discuss the company’s business overview, growth prospects, competitive advantages, and expected returns.
Business Overview
In 1945, Sam Walton opened his first discount store, which served as the starting point for what later became known as Walmart. Since then, Walmart has expanded to become the world’s largest retailer, catering to over 230 million customers every week. The company’s revenue exceeded $648 billion in 2023, and its market capitalization is approximately $660 billion.
As one of the most prominent employers globally, Walmart has a workforce of about 2.1 million.
Source: Investor Presentation
Walmart has also expanded into a variety of different services, making it a true conglomerate. The Walmart U.S. segment includes retail stores in all 50 U.S. states, Washington D.C., and Puerto Rico, as well as Walmart’s digital business. Walmart International consists of operations in 25 countries outside the U.S.
Lastly, Sam’s Club is a membership-only warehouse club that operates in 48 states and Puerto Rico.
Growth Prospects
The company reported strong financial results for the second quarter of fiscal year 2025, with total revenue increasing by 4.8% to $169.3 billion, largely driven by growth in Walmart U.S. and International segments. eCommerce was a standout contributor, achieving a 21% increase globally, while Walmart U.S. comp sales rose by 4.2%, underscoring the success of Walmart’s multi-channel approach combining in-store and digital experiences. The company also raised its full-year outlook, projecting FY25 net sales growth between 3.75% and 4.75% and adjusted operating income growth of 6.5% to 8.0% in constant currency, reflecting strong consumer demand and improved operational efficiency.
Walmart’s new businesses, including advertising, marketplace, and membership services, experienced notable growth, diversifying its revenue streams and boosting overall profitability. Advertising revenue surged by 26% globally, and U.S. marketplace sales saw a 30% increase, driven by enhanced retailer-partner relations and store-fulfilled deliveries. The gross profit rate improved by 43 basis points, attributed to higher membership income, reduced eCommerce losses, and cost efficiencies across Walmart’s International and Sam’s Club segments. Inventory management remained efficient with a 2% global inventory reduction, signaling strong operational health and a strategic balance between stock levels and demand.
The company’s guidance for Q3 suggests further growth, with net sales expected to rise between 3.25% and 4.25% and operating income by 3.0% to 4.5% in constant currency. CEO Doug McMillon emphasized Walmart’s commitment to providing value and convenience, contributing to a 6.4% return on assets (ROA) and a 15.1% return on investment (ROI) for the quarter. With $8.8 billion in cash reserves and a free cash flow of $5.9 billion, Walmart plans to continue repurchasing shares and investing in growth initiatives, positioning itself well in a competitive retail landscape.
US comparable sales were up 6.4% year-over-year.
Source: Investor Presentation
After Q2 results, we updated our estimate to $2.45 in earnings per share. We currently forecast Walmart to grow its earnings per share by 11% per year over the next five years.
Competitive Advantages & Recession Performance
Walmart’s primary competitive advantage is its extensive scale, enabling it to maintain low transportation costs and high distribution efficiencies. Consequently, the company can pass these savings to customers at affordable prices, contributing to its everyday low-price strategy.
Advertising is another strength of Walmart that helps maintain its brand recognition. The company’s vast financial resources allow it to invest billions of dollars yearly in advertising.
Moreover, Walmart’s competitive advantage ensures consistent profitability, even during economic recessions. The company performed remarkably well during the Great Recession, highlighting the resilience of its business model.
It steadily grew earnings-per-share each year in that time:
- 2007 earnings-per-share of $3.16
- 2008 earnings-per-share of $3.42 (8.2% increase)
- 2009 earnings-per-share of $3.66 (7% increase)
- 2010 earnings-per-share of $4.07 (11% increase)
Despite the economic recession being one of the most severe in decades, Walmart’s performance was commendable. The company delivered robust results even during the coronavirus pandemic that led to a recession in the U.S.
Walmart’s growth trajectory indicates that the company could potentially gain from recessions. As a retail leader offering low-cost products, Walmart may experience a surge in traffic during economic downturns as consumers scale back from pricier retailers.
Valuation & Expected Total Returns
Walmart shares currently trade at a price of ~$81. Using our earnings-per-share estimate of $2.45 for the current fiscal year, the stock has a price-to-earnings ratio of 33.1x. This is above our fair value estimate P/E ratio of 25x. Investors should also note that retailers have typically not held P/E multiples above 20.
If the valuation multiple were to revert to our fair value estimate in the next five years, the company’s total returns would see annual returns decline by 6% per year. Walmart shares have performed well for an extended period. While this has rewarded shareholders with strong returns, we view Walmart as a slightly overvalued stock.
Aside from changes in the P/E multiple, Walmart should also generate returns from earnings growth and dividends. A projection of expected returns is below:
- 11% earnings-per-share growth
- 1.0% dividend yield
- -6% multiple reversion
In this scenario, Walmart is projected to generate a total return of 6.0% per year over the next five years.
Final Thoughts
While many retailers have struggled to adapt to the change in commerce shopping habits, Walmart has made the proper strategic investments. The company’s impressive e-commerce growth reflects this view.
The company has performed well by generating approximately 18.6% annualized total returns in the past five years. We find the company’s dividend track record to be impressive, with the most recent dividend hikes of 9%.
Walmart is a safe, defensive stock in times of economic hardship, but the modest total return profile prevents it from being a buy today. As a result, we rate it a hold.
The following articles contain stocks with very long dividend or corporate histories, ripe for selection for dividend growth investors:
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- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
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