Between them, Procter & Gamble (PG -0.78%) and Walmart (WMT -0.08%) have nearly 120 years of consistent annual dividend increases under their belts. Those streaks (50 for Walmart and 67 for P&G) underscore the unique competitive advantages that these industry leaders enjoy. Walmart is the dominant force in the retailing world, while P&G is the market-share leader in consumer brand categories ranging from paper towels to diapers.
Those assets mean that both companies are likely to extend their dividend growth streaks in the coming years. But which one is a better fit for your income portfolio? Let's contrast two of the most popular dividend stocks on the market.
Growth goes to Walmart
Strong sales growth is the foundation of a healthy dividend investment. While both companies are beating peers in this regard, Walmart stands out as having higher-quality demand trends. The retailer posted a 4% sales uptick in the most recent quarter that was mainly driven by rising customer traffic. Shoppers are responding well to its price-leadership selling approach as they look to cut costs. Rival Target, in contrast, has been posting declining customer traffic for more than a year.
Procter & Gamble is growing at about the same 4% rate, but those gains are being driven entirely by rising prices. Volume fell 1% last quarter, suggesting consumers are deciding to scale back on purchases of products like Tide detergent and Bounty paper towels in response to higher prices.
Walmart is also demonstrating that it can grow in areas outside of its core retailing focus. The company crossed $100 billion of e-commerce sales after that segment expanded 23% last year. Investors are excited about rising digital advertising spending, too. Despite its maturity, Walmart is the better option for growth-focused income investors.
Yields and returns
P&G does pay a more generous dividend right now, partly thanks to the stock's relatively weak performance over the past year. Shares are yielding 2.3% compared to Walmart's 1.3%. There are fatter yields even in the retailing industry, including Target and its 2.6% payout.
As for recent hikes, Walmart just announced a head-turning 9% payout increase for 2024. P&G won't reveal its annual raise until mid-April, but investors can expect something similar to last year's 3% boost.
It's too early to tell whether Walmart's dividend will keep growing at a faster pace from here, and that's why income investors might prefer Procter & Gamble for its higher yield and its stronger profit margin (23% compared to Walmart's 4%).
Pay up for quality
P&G is easily the more expensive stock, but for some good reasons. These include its strong profit margin that sits north of 20% of sales, along with its ample cash flow. These factors allowed it to return $16 billion to shareholders through buybacks and dividends last year. Walmart's capital returns were closer to $9 billion.
It's worth keeping Walmart on your watch list, though, to look for signs that the company is making a meaningful move toward higher profit margins as it pushes deeper into tech growth niches like digital advertising. But P&G's financial strength and high yield make it the better dividend stock today, despite the consumer staples giant's relatively weak sales trends heading into fiscal 2024.
