As investors look for ways to combat uncertainty in their portfolio, one idea is to beef it up with dividend income from dividend stocks. Investing in Walmart (WMT -0.08%), an enduring big-box retailer and grocery store that prides itself on low prices, is one way to do this amid a difficult economic backdrop.
Highlighting Walmart's resilience, its dividend has been around for decades. Even better, the company has increased this dividend every year for 50 years in a row. As investors look for high-quality dividend stocks to add to their portfolio, here are three reasons why Walmart stock should be a top consideration.
1. Dividend growth
Walmart reminded investors of its strong balance sheet and cash flow late last month when it announced its latest dividend increase. The company said it was increasing its quarterly dividend by 2% to $0.57, or $2.28 annually. This cash payout gives Walmart a dividend yield of about 1.6% at the time of this writing.
While this dividend yield isn't particularly high, its attractiveness to investors is its consistency. Five decades of annual dividend increases show how well this company has been able to deliver for investors despite facing a wide range of challenges and economic cycles.
Walmart's first dividend of this increased amount is payable on April 3 to shareholders of record on March 17.
2. A low payout ratio
It's also worth noting that Walmart is only paying out about half of its earnings in dividends. Specifically, the grocer has a payout ratio of 52%. A payout ratio this conservative means the company has plenty of room to increase its dividend in the future -- even if Walmart's earnings don't grow from here.
However, it's worth noting that analysts do expect Walmart's earnings to grow in the coming years. On average, analysts forecast an average annualized growth rate in earnings per share over the next four years of about 4% for the company.
3. A durable business
The best part of Walmart's dividend, however, is the durability of its underlying business. Walmart was founded in 1962 and continues to grow its top line at meaningful rates even today. Consider that the company's same-store sales in the U.S. increased 8.3% year over year (excluding fuel sales) in the most recent quarter. Sales growth at its membership-based wholesale business, Sam's Club, rose 12.2% year over year -- and membership increased by 7.1%. Adjusted operating income for the period rose 6.9% year over year to $6.4 billion.
In other words, size has not been a limiting factor for Walmart. If anything, it has developed into a key strength. It gives the company greater scale, enabling it to offer low prices to its customers and keep them coming back. Further, these results demonstrate how Walmart has been able to grow rapidly even in this uncertain environment.
Walmart's long history of dividend increases, a low payout ratio, and its durable business combine to make the company's shares look like a solid option for income investors to consider as a small part of their overall portfolio.
