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Is Walmart a Great Dividend Stock?

By Lawrence Rothman, CFA - Apr 6, 2021 at 12:00PM

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The retail giant is adapting to the future of commerce, but should income investors put its shares in their shopping carts?

While the retail landscape has changed a great deal since Walmart (WMT 2.03%) opened its first discount store in the early 1960s, the chain retains its wide popularity in large part by sticking to its long-time strategy of offering ultra-low prices on a broad range of goods. 

That said, it has hardly stood still. Notably, over the last several years, with people steadily shifting more of their shopping online, Walmart has invested heavily in technology to remain relevant. Even in the face of stiff competition from the likes of Amazon (AMZN 3.49%), it remains the world's largest retailer.

Certainly, no one can deny the great growth and returns Walmart has delivered in the past. However, as the last year has reinforced, conditions can change quickly, leaving once-successful companies struggling to adapt. Walmart has at many times been a rewarding stock to hold. But is it an attractive stock for dividend-seeking investors today?

A woman screaming as $100 bills float around her.

Image source: Getty Images.

Rewarding shareholders

Walmart continues to distribute ever-higher dividends to its shareholders. Earlier this year, the board of directors raised the quarterly payout by a penny to $0.55. While this may not seem like much, the company has increased its dividend annually since its first payment in 1974, giving it a 48-year streak.

Meanwhile, Walmart continues to invest, particularly in technology, to remain competitive and stay at the top of its game. Management continues to push initiatives to make it easier for shoppers to order and receive merchandise in a variety of ways. For instance, last year, it launched its subscription membership program, Walmart+, which offers delivery, discounted gas, and faster checkout in stores.

This year, management plans to invest about $14 billion to further automate its distribution and e-commerce facilities, allowing it to meet strong customer demand.

Fortunately, Walmart generates plenty of free cash flow -- $25.8 billion last year alone, of which $6.1 billion went to dividends.

A retailer for all seasons

Low prices are always appealing to customers, particularly when combined with a well-integrated omnichannel experience that provides them with speed and convenience. However, people are particularly attracted to Walmart during difficult economic times.

In the company's last fiscal year, which ended Jan. 31, its adjusted revenue rose by 7.7%, propelling operating income 10.6% higher.  For the current year, management expects a low-single-digit percentage increase in sales. While it predicts operating income will stay the same or increase slightly -- partly due to higher expenses -- the hit to profitability should prove temporary as its initiatives pay off down the road.

Does this rise to greatness?

At current share prices, Walmart's dividend yield is 1.6% -- roughly in line with the 1.5% yield of the S&P 500 index.

While income investors generally prefer stocks with higher yields than the overall market average, given Walmart's impressive track record, its long streak of annual payout hikes, and its capacity to continue investing in its business, this is still a good stock for them.

It also adds up to greatness in my book.

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Stocks Mentioned

Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$128.56 (2.03%) $2.56
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$2,299.08 (3.49%) $77.53

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