Time to Check out WMT stock
Despite being a decades-old business, Walmart Inc (NYSE:WMT) has been a strong performer in the stock market. Year-to-date, it’s up more than 25%, which is pretty impressive for a mega-cap retail company.
While the rally means Walmart stock is more expensive than before—and its yield is lower than before—the company still deserves the attention of income investors.
The reason is threefold.
1. Walmart Stock Provides Recession-Proof Dividends
The concept of recession-proof dividends has been discussed a lot here at Income Investors, and for good reason: the economy moves in cycles. Historically, this cycle happens every 10 to 12 years. So, if you want to collect passive income from stocks in the long haul, it’s important to own shares of companies that can provide stable dividends not just during good times, but in tough times as well.
Looking around, few companies have done a better job than Walmart at paying recession-proof dividends. In fact, the retail giant was able to grow its dividend in some of the worst economic downturns in history. Since Walmart declared its first-ever dividend in March 1974, the company has increased its annual cash payout every single year. (Source: “Dividend History,” Walmart Inc, last accessed December 11, 2020.)
A quick look at the business would reveal why it has managed to build such an impressive track record: Walmart is a retailer known for its “Everyday Low Prices.” It has a huge network of more than 11,000 stores in 27 countries. More than 265 million customers visit the company’s stores or e-commerce web sites every week. When the economy is down, people still need to shop for necessities, and the value-appeal of Walmart’s stores makes its business extremely resilient.
2. WMT Stock Provides Pandemic-Proof Dividends
Before 2020, no one was really talking about how pandemic-proof a business could be. The SARS outbreak in early 2003 was contained by July of the same year and the U.S. stock market was rallying during that period.
It wasn’t until the COVID-19 outbreak—and the related stock market crash earlier this year—that “pandemic-proof” became a business buzzword.
Note, there’s a difference between pandemic-proof and recession-proof. Here’s an example: a fast-food restaurant can thrive in a recession because people don’t go to expensive restaurants as often during hard economic times. But the same restaurant would be in much worse shape during a pandemic when people are staying at home and not going to restaurants at all.
Walmart is pandemic-proof. It is an “essential” retailer, so the stores have remained open during the lockdowns. As a matter of fact, because some consumers were stocking up on food and other essential supplies when the outbreak first started, Walmart’s business actually got a solid boost.
Here are some numbers: in the three months ended April 30, comparable sales at Walmart U.S. increased by 10.0%. In the three months ended July 31, comparable sales increased by 9.3%. Food and general merchandise were the main growth drivers. (Source: “Walmart U.S. Q2 comp sales Grew 9.3% and Walmart U.S. eCommerce Sales Grew 97%,” Walmart Inc, August 18, 2020.)
3. Walmart Stock Is E-Commerce-Proof
In this day and age, any discussion of a retail business would not be complete without talking about e-commerce. With the rise of online shopping platforms like Amazon.com, Inc. (NASDAQ:AMZN), e-commerce has become a threat to many physical retailers.
The neat thing is that Walmart has turned e-commerce into a catalyst. In the fiscal quarters ended April 30, July 31, and October 31, e-commerce sales at Walmart U.S. grew 74%, 97%, and 79% year-over-year, respectively.
The company has also launched a subscription-based service. “Walmart+” offers same-day delivery of groceries, fast shipping on items from Walmart.com, and discounts on fuel at Walmart gas stations, among other perks. Priced at $98.00 per year, the subscription service has the potential to drive sales growth in Walmart’s e-commerce segment. After all, the “Amazon Prime” subscription service has proven to be an important contributor to Amazon.com’s success.
Bottom Line on Walmart Inc
As I mentioned at the beginning, because the WMT stock price has increased this year, its yield is more subdued. Trading around $149.50 per share, the company offers an annual yield of 1.4%.
However, keep in mind that those dividends are recession-proof, pandemic-proof, and e-commerce-proof.
Walmart last increased its payout in February 2020. Based on the growth in its business, the company should be ready for another dividend hike in the next few months.