Walmart(NYSE: WMT) stock is on a roll, up 16% so far in 2024, outpacing the 8% rally in the S&P 500. Those returns also surpass the year-to-date gains of retailing peers like Costco Wholesale and Target.
There could be more industry-leading growth to come. Walmart said in late February that it expects the fiscal 2025 year to feature solid sales growth and improving profitability, in fact. But are shares of the dividend-paying retailer a no-brainer buy right now? Let's take a closer look.
Buy for growth
You might think Walmart's massive global sales footprint makes it impossible for the company to grow quickly. It's hard to meaningfully add to a $500-billion-plus annual sales haul, after all. But the chain can still surprise investors on this point. Sales last quarter rose a healthy 6%, for example, adding $10 billion to Walmart's Q4 revenue. That growth was powered by rising customer traffic, too.
The chain is winning market share from rivals like Target and Kroger in its key groceries and general merchandise niches. It is achieving these wins through its price leadership strategy, but also with help from its rising customer satisfaction metrics. Growth was particularly strong in the e-commerce segment, which seems to have a long runway ahead for expansion.
Buy for profits
Unlike some other retailers, Walmart had no trouble boosting profitability this past year. Gross and operating profit margins both rose, powering a 10% earnings spike for the full 2023 year.
One key factor behind this increase has been the company's success in the tech niches of e-commerce and digital advertising sales. It is now generating over $100 billion in the digital selling space, for example.
Another is Walmart's strong customer traffic at stores. And yet another has been the retailer's wins with more affluent shoppers. You can see the impact of all these gains best in Walmart's operating profit margin. That key metric is moving back toward 5% of sales from a recent low of 4%.
Avoid due to the yield
Yet, dividend investors might want to leave Walmart stock on the shelf for now. Its yield is small compared to those of its peers at just 1.3%. You can get double that figure by purchasing Target shares. Home Depot is another great option, and its yield is roughly 1 percentage point higher than Walmart's.
On the positive side, Walmart's dividend has been increasing more quickly lately. Walmart just hiked its payout by 9% for 2024, marking a huge acceleration over the prior year's 2% boost. The faster pace of earnings growth today implies that there could be additional big dividend raises ahead for income investors. Still, there are many choices both within and outside of the retailing industry that pair a similar growth profile with a higher dividend yield.
Ultimately, though, Walmart stock deserves a spot on most investors' watch lists, if not in their portfolios. The retailing leader has proven that it can grow through a wide range of selling environments and it's finding ways to improve on its already impressive earnings and cash flow trends. These factors should support strong returns for the company's shareholders even if the dividend yield is a bit modest.
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Demitri Kalogeropoulos has positions in Costco Wholesale. The Motley Fool has positions in and recommends Costco Wholesale, Target, and Walmart. The Motley Fool recommends Kroger. The Motley Fool has a disclosure policy.
