The only thing certain about business in 2030 is that it will be incredibly different than today. That's what makes picking stocks to hold for longer than a decade difficult. However, both General Motors (GM 0.15%) and Walmart (WMT -0.23%) have intriguing catalysts over the next decade-plus, and offer investors a juicy dividend yield while they wait – here's why these two are top dividend stocks for 2030.
Told you so
Detroit automakers have been shouting for years, and those in the know mostly agreed, that they're not the same vehicle manufacturers they once were. For Wall Street to listen to that argument, however, automakers have to prove to investors and analysts they can evolve and take advantage of future catalysts such as driverless vehicle technology – something short-sighted management would have scoffed at or ignored in prior decades. Preparing for technology such as driverless vehicles is easier said than done, but General Motors has pulled a rabbit out of the hat over the past two years with GM Cruise and showed it has the potential to compete with anyone.
You may or may not have noticed, but SoftBank Vision Fund agreed in late May to invest $2.25 billion in GM Cruise, the Detroit automaker's self-driving subsidiary, as it plans to deploy self-driving taxis next year. That investment pegs GM Cruise at a current valuation of $11.5 billion, but here's the kicker – there was an even newer estimate that says GM Cruise could be worth up to $43 billion! That's right, General Motors' 2016 acquisition of Cruise Automation for roughly $1 billion has exploded onto the scene and is receiving a lot of hype – something Wall Street never imagined a few years ago.
Interior of GM's driverless Cruise. Image source: General Motors.
In an attempt to summarize RBC Capital Markets' auto-industry analyst, Joseph Spak, if GM executes its plan he projects a fleet of 800,000 GM Cruise vehicles by 2030 driving roughly 58 billion miles that year. At a $0.55/mile rate, and juicy 29% EBIT margins, they predict $17 billion in EBITDA, valuing GM Cruise at roughly $43 billion using their discounted cash flow analysis (11 times exit multiple). Further, what many investors don't realize is that if GM dangles a potential IPO of GM Cruise in front of recruits, it will help lure top talent away from the tech industry, a hugely important aspect that many automakers are trying to accomplish right now.
For context, General Motors' current market capitalization is $55 billion, and creating something with the valuation of GM Cruise so quickly would be a phenomenal accomplishment. Many auto investors cringe when they imagine what could have been if GM, or any automaker, had thought of and developed an Uber app before Uber came to be. Well, this is a pretty similar scenario to developing something as disruptive as Uber, and if GM Cruise is successful, the answer to what "could have been" might be a far more lucrative automaker by 2030. And while 2030 feels like the distant future, the good news is that GM has made a habit of returning value to shareholders: From 2012 through 2017, the automaker returned roughly $25 billion through dividends and repurchases, and it has a dividend yield of 3.8% currently.
Adapting, not dying
Over the past decade when many retailers were shuttering brick-and-mortar stores left and right, investors wondered if Walmart's best days were behind it. It was a fair concern, especially considering the company hadn't figured out an e-commerce story worth selling to investors. But that changed in 2016 when Walmart bought Jet.com for $3.3 billion, which brought its founder, Marc Lore, and his start-up mentality into the fold. Walmart didn't stop there with acquisitions of Bonobos, Modcloth, Moosejaw, and then its recent blockbuster acquisition of a controlling stake in India's largest online retailer, Flipkart.
The kicker with its Flipkart stake is that it's more than an e-commerce story. Flipkart has a delivery infrastructure in India that it calls eKart, which makes about half a million deliveries annually in a network spanning 800 cities. India's online grocery segment hit $1 billion in sales last year, per RedSeer Consulting, and TechSci Research estimates online grocery sales in India to surge 55% annually through 2021.
Image source: Walmart.
Walmart's operations in the U.S. – which stand to benefit from learning about Flipkart's delivery logistics – is making moves to improve its online business here, too. Walmart anticipates its online business to grow 40% during 2018, and its free two-day shipping is generating more online demand for the big box retailer. The company is also encouraging online orders through convenient pickup scheduling for consumers at local stores.
Yes, Walmart's 77% stake in Flipkart for $16 billion was expensive, and it will likely take years to see the operations bear fruit. But by the time 2030 rolls around, don't be surprised if Walmart is one of few rivaling Amazon's online prowess. With a network of stores that could serve and deliver online orders quickly and easily, Walmart's best days could very well be in the future. While investors wait for that future, the retail juggernaut will pay you a solid 2.4% dividend yield, a payout that has consistently increased over the years.
2 solid options
There's no question that both General Motors and Walmart will face challenges and headwinds over the next decade. But it's equally clear that both GM and Walmart have visions for a lucrative long-term business, be it driverless vehicles or online grocery sales. Heck, it's not impossible to imagine how those two businesses could eventually cross paths with driverless vehicles delivering groceries – what a wild world we live in. Both stocks have intriguing upside, and both will likely pay you a solid dividend while you hold until 2030.
