Walmart is the world’s largest retailer. In the U.S., its name alone is practically a byword for affordable and hassle-free shopping. But does the company make for a good dividend stock, and is it worth investing in at the current time?
Walmart’s Dividend History
It’s said that a good dividend stock is one you buy today and never sell. These kinds of companies are sometimes called Dividend Aristocrats. To qualify as an aristocrat a business must have increased its annual dividend payout for at least the previous 25 years, as well as be a member of the S&P 500 stock market index.
And it just so happens that Walmart is one of these Dividend Aristocrat too. In fact, the company recently notched up its 48th consecutive year of dividend rises.
If the firm continues with another two more annual increases like this it will join the even more exclusive club of the Dividend Kings i.e. companies that have upped their dividend for 50 years or more.
This is certainly rarefied territory: there are only 31 companies in the world with such an accolade, and it’s a sure-fire bet that the company would like to be next on that list.
Walmart’s latest dividend increment represents a roughly 2% increase from last year’s payment, bringing its dividend for 2021 to $2.20 per share. The dividend record dates fall in March, May, August and December, with shareholders receiving their payment for each payout one month later.
Despite the firm’s consistency in paying out a dividend to shareholders, the value to the investor of Walmart’s generosity might not appear as attractive as some would otherwise think. The forward yield on that dividend rate of $2.20 only stands at 1.56% at today’s current share price. And yes, that’s just higher than the US 10-year Treasury yield of 1.53% right now, but that’s not saying an awful lot.
For comparison, other consumer staples companies with similar longevity in the dividend payout stakes are yielding 30%+ more than Walmart at the moment. The Clorox Company (CLX) and Archer-Daniels-Midland Company (ADM) have yields of 2.60% and 2.16% respectively, whereas the Kimberly-Clark Corporation (KMB) gives a dividend yield on its shares of more than double Walmart’s at 3.48%.
And yet, the dividend yield isn’t everything. There are other important metrics by which we can judge a dividend stock, and Walmart does pretty well on many of these.
For instance, Walmart’s 1-year forward Dividend Payout Ratio of 37.75% is lower than the sector’s average at 47.37%, suggesting that the dividend is stable since a lower proportion of the firm’s earnings are needed to cover the payout.
The same is true of Walmart’s Cash Dividend Payout Ratio, which is a good 25% lower than the wider consumer staples’ industry at just 28.96%.
Furthermore, the company’s Net Debt to EBITDA Ratio is also very low when seen against its peers. Walmart enjoys a trailing twelve month ratio here of just 44.97% where its rivals are highly leveraged at an average of 165.80%.
But stability comes at a cost – and not simply from its low yield.
Walmart’s compounded 3-year Dividend Growth Rate is fairly low at 1.91%, as is its forward EBITDA Growth of 4.04%. There might be some good rationale for this, however; for if Walmart wants to maintain its consistent dividend payout and its consistent dividend rate hikes, it has to be cautious about overextending itself in the short term.
Slow and steady wins the race, and Walmart doesn’t need to prove its pedigree in the dividend universe with flashy dividend surprises that it can’t replicate further dow the line.
Is Walmart Losing Momentum?
After the latest release of its quarterly earnings results, Walmart gave further guidance for what it expected from Q2 2022 and the remainder of the financial year. Having posted reassuringly good numbers for Q1 – a beat of $0.48 on an EPS of $1.69, and revenue of $138.3 billion exceeding analyst predictions by $.6.17 billion – attention was turned to whether the company could maintain this momentum going forward.
Unfortunately, the outlook was somewhat mixed. Management estimates were revised down for both net sales and operating income – although in each case this was only because of upcoming divestiture activity over the year.
However, during the conference call following the earnings release, Brett M. Biggs, Walmart’s Chief Financial Officer & Executive Vice President, did say that sales in the first quarter of 2022 benefited from the boost given to them by the US stimulus package, and that the apparent resurgence in COVID-19 in some key countries, notably Canada and India, could negatively affect business for the rest of the year.
Is Walmart Stock A Buy?
Walmart is an attractive stock at the moment for three primary reasons:
- its operating income,
- its price-to-sales ratio, and
- a bullish Wall Street outlook.
On the operating income and price-to-sales front, Walmart exceeded its year-on-year income figures by 32.3%, bringing in $6.9 billion of profit in the first quarter of 2022, and boasts a sales multiple of just 0.71 – a discount of 57.25% to the rest of its competition.
This gives a good indication to investors that the business is functioning just fine, and there are no underlying issues simmering away just below the surface.
Still more pleasing are analysts’ predictions for the company. The Royal Bank of Canada proposes a target price of $173 at the high-end, implying a 23% upside on its current price of ~$140.
Many other ratings firms are equally optimistic, putting out multiple buy recommendations for Walmart stock.
Is Walmart A Good Dividend Stock? Conclusion
So, to wrap up: Walmart is a reliable dividend provider with a low – and thus affordable – Dividend Payout Ratio. Its yield isn’t great, but it pays consistently and has delivered constant, if small, increases to its dividend over the years.
The firm had a solid operating cash flow in Q1, and once its divestiture activities are done with for the year, it should see its profits continue to climb. Analysts like the stock too, and that’s never a bad sign.
The company’s stock has been trading sideways for a while now, and is actually down around 8% from all-time highs in November of last year. Entry points are always difficult to ascertain – but, for income investors, if Walmart’s stock keeps trending downwards, then that low dividend yield will start going up – and could make for an excellent opportunity to get onboard.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.