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Why Wal-Mart Is Killing the Dow

The Dow Jones Industrial Average (INDEX: ^DJI  ) contains 30 of the best known and most successful companies in the world. They build the airplanes we ride on, serve us millions of hamburgers every day, and bring us the Internet on the devices they assemble.

But while their distinct identities are often usurped by inclusion on the index, each of the Dow's components offer investors unique opportunities and exposure. With this in mind, the current article series provides a cursory update on each of the 30 stocks included on the storied index. Today, we're looking at Wal-Mart (NYSE: WMT  ) .

Quite simply, it's been a very good year for Wal-Mart shareholders. Over the last nine months alone, shares in the discount retailer are up by 26%, beating the Dow by nearly 17 percentage points, and coming up just short of its primary domestic competitor Target (NYSE: TGT  ) , which returned 30% over the same time period.

WMT Total Return Price data by YCharts

However, it's important to note that if you extend this further back, then the story becomes much more nuanced. Over the last five years, for instance, Wal-Mart's stock has returned 94%, blowing away the Dow's 1.6% loss and Target's comparatively meager 16% gain.

WMT Total Return Price data by YCharts

But over the last 10 years, Wal-Mart underperformed both measures with a return of 71% compared to the Dow's 73% return and Target's 127%.

WMT Total Return Price data by YCharts

What gives?
The answer is this: Over the past decade, Wal-Mart's fundamental performance has been far from impressive, notching multiple quarters of negative same-store sales figures. This explains its relatively dismal 10-year performance. But over the last five years, investors have nevertheless flocked to it as a prototypical defensive stock.

A defensive stock is one that provides a constant dividend and stable earnings regardless of the state of the overall market. Needless to say, this fits Wal-Mart to a tee. As you can see in the chart below, if you exclude seasonal variations to earnings, both its dividend payout and earnings per share have grown consistent since 2003. The only exception to this was in 2009 when it briefly dropped its dividend before resuming its upward ascent.

WMT Dividend data by YCharts

What does this mean for Wal-Mart investors?
While this could be interpreted any number of ways, one thing seems clear: Wal-Mart's countercyclical movements could spell trouble for the company's shareholders if and when the fundamental economy recovers. It's for this reason, in turn, that investors would be wise to consider offsetting Dow components like the three identified in our free report about three Dow stocks every dividend investor should own. To access this report instantly and for free, simply click here now.

Fool contributor John Maxfield does not have a financial stake in any of the companies listed above. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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Related Tickers

10/21/2016 1:14 PM
^DJI $18109.87 Down -52.48 -0.29%
TGT $68.14 Up +0.43 +0.63%
Target CAPS Rating: ***
WMT $68.44 Down -0.29 -0.42%
Wal-Mart Stores CAPS Rating: ***