Wal-Mart Stores, Inc.: Collect Recession-Proof Income from WMT Stock?
Why Wal-Mart Stock Should Be on Your Radar
People don’t get too excited about shopping at Wal-Mart Stores, Inc. (NYSE:WMT). And owning Wal-Mart stock is not something to brag about; in the past 12 months, WMT stock climbed a measly 0.7%. Still, those who stuck with the retail giant over the years have been handsomely rewarded, and I’m not talking about Wal-Mart’s stock price.
You see, as a retailer with an over-$200-billion market cap, WMT stock is probably not going to shoot through the roof anytime soon. What the company does offer, however, is an income stream that could be recession-proof.
Not everyone is fond of the company. As Wal-Mart expanded its presence, its scale and efficiency offered so much value to consumers that smaller companies couldn’t really compete with it. Today, Wal-Mart is the largest retailer in the world, with nearly 260 million customers visiting the company’s more than 11,500 stores in 28 countries each week. In the company’s last fiscal year, it generated $482.0 billion of total revenue, more than any other company on Earth.
Wal-Mart’s entrenched position in the retail business means the company can return some of its profits to shareholders. In fact, it started to do that a long time ago. Since declaring its first annual dividend in March of 1974, Wal-Mart has increased its annual cash dividend every single year.
Right now, the company pays $0.50 per share on a quarterly basis, giving WMT stock an annual dividend yield of 2.95%. In the past 10 years, Wal-Mart’s quarterly dividend rate has nearly tripled. (Source: “Wal-Mart Stores, Inc. Dividend Date & History,” NASDAQ, last accessed October 12, 2016.)
Fourty-two consecutive years of dividend hikes is quite impressive, especially when you consider what happened during that period. The world economy had its ups and downs, as did the financial markets, but Wal-Mart stock just kept raising its payout to income investors.
If you are wondering how Wal-Mart managed to do this, the answer lies in its “Everyday Low Prices” strategy. No one wants to pay more than what they have to, especially when times are tough. By offering the best prices possible, Wal-Mart has become the go-to place for value seekers.
And why is Wal-Mart capable of offering such low prices? Well, because Wal-Mart is the largest retailer in the world, it has huge bargaining power over its suppliers. Suppliers around the world want to get their products onto Wal-Mart’s shelves. And by commanding the best prices from its suppliers, Wal-Mart can pass some of that savings to customers.
If the company runs such a wonderful business that could also be recession-proof, why doesn’t Wal-Mart stock get more attention from investors? Well, the concern here is that when consumers move from brick-and-mortar stores to online channels, traditional retailers will become obsolete.
However, note that Wal-Mart is not standing still. The company has its own e-commerce segment, which has been growing at a decent pace. It has also acquired Jet.com, Inc. to further boost its capabilities in the online shopping segment.
Most recently, it was reported that Amazon.com, Inc. (NASDAQ:AMZN) is planning to build convenience stores and develop curbside pickup locations. Will Amazon’s latest expansion into the groceries business be a threat to Wal-Mart? (Source: “Amazon to Expand Grocery Business With New Convenience Stores,” The Wall Street Journal, October 12, 2016.)
I don’t believe it will. There’s no doubt that Amazon is dominating the e-commerce industry, but note that Wal-Mart is already in the online groceries business. The company can deliver groceries to your doorstep in certain markets and offers free online grocery pickup service in others.
Despite its giant size and deeply entrenched position in the traditional retail business, Wal-Mart is quite adaptive. By capturing part of the flow to online shopping, the company could not only ensure its relevance in the new era, but also create a new revenue source.
The Bottom Line on WMT Stock
And it’s not like Wal-Mart’s retail business is really declining. In the company’s most recent fiscal quarter, comp sales of U.S. locations went up by 1.6% year-over-year, driven by a 1.2% increase in traffic. (Source: “Walmart reports Q2 FY17 EPS of $1.21, adjusted EPS of $1.07, Raises full-year adjusted EPS guidance range to $4.15 to $4.35,” Wal-Mart Stores, Inc., August 18, 2106.)
The bottom line is that Wal-Mart is a mature company that returns value to investors. Despite some concerns from e-commerce, you should still keep WMT stock on your radar.