Walmart (WMT 0.93%) has been successful for a long time, leading the company to reward shareholders with dividend payments. But there are many companies that pay dividends. As we've seen this year, a lot of them, including large and well-established companies, have suspended or cut payments.
Certainly, the COVID-19 pandemic created uncertainty and hurt companies' results, especially in certain industries. But for me to consider a company a great dividend stock, one criterion is for it to continue paying even in difficult and unforeseen circumstances. Another thing for investors to consider is whether a company can grow its dividend.
With those two criteria in mind, it's time to determine whether Walmart has achieved dividend greatness.
Is the dividend safe?
Walmart opened its first discount store nearly six decades ago. Its business is to keep costs down and charge its customers ultra-low prices.
This has proven very successful. Now the world's largest retailer, it generates a lot of sales and profit from its business. This translates into plenty of cash flow. For the first nine months of this year, which covered the period that ended Oct. 31, Walmart's operating cash flow was $22.9 billion. This was up more than 57% versus a year ago.
After subtracting the $6.4 billion that the company spent on capital expenditures, there was plenty left over to pay the $4.6 billion of dividends. With this cash flow, Walmart hasn't had to borrow money to pay higher amounts, either.
So Walmart checks this box.
Are dividend increases in store?
Investors can take comfort in the fact that Walmart has a strong history of raising dividends. Since declaring an initial dividend in 1974, Walmart has increased the payment annually. This makes it a Dividend Aristocrat, which is an S&P 500 company that has raised its dividend for at least 25 straight years.
In a few years, the company is set to join an even more exclusive group as a Dividend King. These are members of the index that have increased payments for 50 years or more.
Walmart isn't resting on its laurels, either. It is pushing forward with its e-commerce business, directly taking on Amazon (AMZN 1.41%) with Walmart+, the subscription service it launched a few months ago. Charging $12.95 a month, it offers fast delivery on a number of items, speedier checkout at its stores, and savings on gasoline.
While there's no guarantee Walmart will continue increasing its dividends, it is clearly a priority. And the company's digital investments bode well for the company's future profitability and cash flow growth.
Is this enough for greatness?
Raising its dividend by a penny to $0.54 this year and sustaining it is an impressive feat during challenging times. Doing so year after year in all kinds of economic conditions is simply astonishing.
People sometimes throw around the word greatness too freely. But, in this case, with nearly 50 years of raising payments and more on the horizon, it is an apt description.