Walmart (NYSE:WMT) isn’t going to beat the market. The corporation won’t post high double-digit revenue growth rates and will get lapped by growth stocks. However, the leading retailer is a more valuable pick for investors who are setting their sights on retirement.
The stock has many traits aspiring retirees will like. The corporation is more stable, distributes cash flow, and still has respectable gains over the past year. I don’t believe Walmart will keep up with the Nasdaq 100 (NDX), but its one-year and five-year returns are very similar to the S&P 500 (SPX).
I am neutral on the stock since I am a growth-oriented investor and will not consider retirement for a few decades. However, it has a promising foundation and has some solid growth initiatives that can accelerate revenue and earnings growth.
Resilience to Economic Challenges
Economic contractions invite consumers to look for more affordable products and services. Saving money becomes a priority, and that perfectly aligns with Walmart’s business model.
The global retailer has been offering lower prices for more than 60 years and has more than 10,500 stores in 19 countries. This value proposition offers more resistance during economic uncertainty and can make Walmart less vulnerable to corrections.
Walmart stock currently has a beta of 0.50, which indicates that it is less volatile than the overall stock market. The global retailer isn’t likely to swing higher than growth stocks during bull markets. However, it’s unlikely to crash by 50% if macroeconomic conditions go south.
Lower volatility is important for retirees who may have to sell their favorite stocks to cover living expenses. Selling during 2022 resulted in investors receiving less money and missing out on the big recovery in 2023. If investors have to sell Walmart, it’s unlikely to fall as much as the rest of the market during economic uncertainty.
Large Dividend Increase
Steady dividend payments are another catalyst that makes Walmart an attractive pick for retirees. While the firm has had a history of low dividend growth, Walmart recently announced its largest dividend hike in over 10 years.
This 9% dividend hike accompanied the stock split. Investors will now receive an annualized dividend of $0.83 per share. It’s also Walmart’s 51st consecutive year of dividend increases. The yield currently sits at 1.36%.
While some high-yielding stocks like AT&T (NYSE:T) have reduced their dividends over the years and turned out to be bad investments, Walmart distributes a healthy dividend while having its stock appreciate over time. The corporation has a dividend payout ratio of 34%. That’s a great margin of safety that can easily support additional dividend hikes.
The Growth Drivers
Walmart used interesting language when describing itself during its dividend announcement. The brief corporate profile hints at Walmart’s new growth drivers:
“Walmart is a people-led, tech-powered omnichannel retailer helping people save money and live better – anytime and anywhere – in stores, online, and through their mobile devices.”
The phrase “Tech-powered omnichannel retailer” grabbed my attention. It’s a descriptor that encompasses two of Walmart’s most promising opportunities: e-commerce and ad revenue.
Both of these segments are growing at solid rates, and the fourth quarter of Fiscal 2024 further highlighted that fact. Global E-Commerce revenue increased by 23% year-over-year, while Global Advertising revenue jumped by 28% year-over-year. These growth rates compare Fiscal 2024 to Fiscal 2023.
These growth engines are still small slices of the pie. Walmart generated $648.1 billion in Fiscal 2024. More than $100 billion of that revenue came from E-Commerce, while the Advertising business generated $3.4 billion.
The E-Commerce segment is having a more immediate impact on revenue and earnings, while Advertising looks very promising. Both of these catalysts can reward long-term investors who are willing to wait for these segments to make up a larger portion of the pie.
Walmart, as a whole, reported 5.7% year-over-year revenue growth in Q4 of Fiscal 2024 and 6.0% year-over-year revenue growth for the full year.
Is WMT Stock a Buy, According to Analysts?
Walmart is currently rated as a Strong Buy among 28 analysts based on 25 Buys and three Holds assigned in the past three months. The average WMT stock price target implies 8.3% upside potential. The highest price target of $75.99 suggests the stock can rally by an additional 24.6% from current levels.
The Bottom Line on Walmart Stock
Walmart isn’t going to generate groundbreaking returns. It’s been roughly in line with the S&P 500 for a few years. However, most investors don’t invest in Walmart with the goal of beating the market.
Investors value this stock for its reliability, low beta, and steady cash flow. The corporation’s recent dividend hike has reignited the conversation about Walmart being a dividend growth stock. If the firm can maintain a high single-digit growth rate for its dividend, it will become a more enticing pick for long-term investors.
Global E-Commerce and Advertising revenue growth can become major catalysts for long-term performance. These segments are generating healthy growth rates and should continue to become a larger percentage of Walmart’s total revenue.
