While I don't suggest holding only one stock since this presents risks, it is a useful exercise to help you decide which stock you would own above others. After all, if you could only pick one company to invest in, you should make it an extraordinary one. That way, you can make an informed decision when building a diversified portfolio.
Walmart (WMT 0.66%), although a venerable company, hasn't become stodgy and indeed continues to shine. It's time to uncover how it still remains special after all of these years -- and why it's the one I would choose.
Attracting a crowd
It's awfully tough for other retailers to beat Walmart's low prices. That's because the company does everything in its power to keep costs low and passes these savings along to customers. It's a business that Walmart has perfected since opening its first discount store 60 years ago.
Management has also invested in technology to allow its customers to shop and receive merchandise however they like. This includes ordering online and picking up in stores or same-day delivery. There's Walmart+, its subscription-based service it launched in September 2020 that includes delivery without an extra charge and quicker checkout. Plus, it provides discounts on gasoline, which many shoppers will undoubtedly appreciate during these times when prices at the fuel pump have jumped.
The business does well in a variety of environments. Even in these high inflationary days and issues with supply chains that have hurt other retailers, Walmart continues to do well. In its fiscal fourth quarter, which ended Jan. 31, sales rose by nearly 8% year over year to $152.9 billion. This excludes sales from businesses sold since the year-ago period.
Showing the company's prowess, for this year management expects sales to grow 4% and operating income to increase by even more.
Walmart's business also leaves it flush with free cash flow (FCF) after spending on things like the supply chain, automation, and customer-facing initiatives. Last year, after capital expenditures of $13.1 billion, Walmart's FCF was $11.1 billion. That meant it could easily afford to pay the $6.2 billion of dividends.
In fact, the board of directors has raised dividends every year since its first payout in 1974. It has long been a Dividend Aristocrat, which is an S&P 500 company that has increased payments for at least 25 years. At this rate, Walmart is set to become a Dividend King in a couple of years when it runs the streak to half a century.
It's nice to know that you're putting your money into a company that can invest in growth initiatives to keep up with the likes of Amazon (AMZN 0.84%) and continue increasing dividends. Moreover, the shares trade at a forward price-to-earnings ratio of 23, half the multiple of rival Costco.
While well-regarded retailers such as Sears Holdings and Toys R Us have filed bankruptcy over the last few years, you can sleep well owning Walmart's shares. That's because it continues forging ahead, remaining relevant to its core customers. Even during the dark days of the pandemic, people have continued flocking to the company's stores and websites. That's because shopping for bargains never goes out of style. And with Walmart investing in the future, neither will its stock.