The Wal-Mart dividend remains rather timeless, and for good reason. Wal-Mart Stores (NYSE: WMT), the largest employer in the world, generates close to half a trillion dollars in sales each year, and generates a 2.8% dividend yield.
But Wal-Mart stock is only recently getting its groove back, after years of underperformance. The rise of e-commerce behemoth Amazon.com (NASDAQ: AMZN) has shaken Wal-Mart and most companies in the retail world.
Amazon stock has outperformed Wal-Mart by nearly sixfold over the last five years. At the same time, Wal-Mart shares have underperformed the S&P 500 grossly.
Now investors are cheering the comeback of Wal-Mart shares, which have gained nearly 20% in 2016. And they continue to rely on Wal-Mart dividend, which the company has increased for 41 straight years.
How is Wal-Mart managing this growth? Can Wal-Mart sustain its solid outperformance?
Turning Up the Heat in E-Commerce
To start, Wal-Mart has revamped its e-commerce business. Wal-Mart figured out how to better compete with Amazon and continues to aggressively push forward on a number of fronts. It’s rolled out free two-day shipping in the form of its ShippingPass program (comparable to Amazon Prime) and partnered with Uber and Lyft to deliver groceries.
Last month, Wal-Mart bought Jet.com for $3.3 billion to help accelerate its growth in the e-commerce space. The huge acquisition is another step in Wal-Mart’s quest to better compete with Amazon. Wal-Mart will be able to leverage Jet.com’s vast distribution network and pricing power.
Wal-Mart’s Other Growth Strategies
Beyond its strategic initiatives in e-commerce, Wal-Mart does have a few other strategies up its sleeve. This includes ratcheting up competition with dollar-store chains. However, it’s not doing so with Wal-Mart Express, its own dollar-store format. That concept was abandoned earlier this year.
Wal-Mart’s strategy now is to take on the dollar-store industry with even lower prices. Wal-Mart has been cutting prices on key high-traffic items like laundry and consumer staple necessities to draw in the dollar-store customer.
Wal-Mart’s recent quarterly results, released in August, showed that the company is indeed gaining ground. The retailer has seen a big jump in performance for its Neighborhood Market grocery stores; its comparable store sales are up 6% in the most recent quarter.
The Neighborhood Market locations work well in tandem with its Supercenter stores; Neighborhood Markets also act as pickup points for Wal-Mart’s online sales, extending its e-commerce network.
Wal-Mart’s plan to take a chunk out of the dollar store market share appears to be working. Sales at both Dollar General (NYSE: DG) or Dollar Tree (NASDAQ: DLTR) fell, unexpectedly, during the second quarter, while Wal-Mart’s sales rose.
Wal-Mart is also doing more to fully automate its business. This includes offering self-driving shopping carts, which can be hailed like an Uber. Wal-Mart has filed patents for a cart that will be complete with motors and monitors that can return themselves from customer carts to the store.
It’s all part of Wal-Mart’s quest to make shopping as seamless and convenient as possible, which are two key reasons that Amazon’s formula has been so successful.
Wal-Mart Dividend? No Competition
Amazon doesn’t offer a dividend and won’t for some time. Wal-Mart pays a $2 a share dividend each year; the Wal-Mart dividend is a payout of less than 50% of its earnings. Its dividend yield is upwards of 2.8%, and that’s a hefty dividend that investors won’t get from discount-store stocks like Dollar General or Dollar Tree. Again, those 41 straight years of Wal-Mart dividend hikes aren’t likely to stop.
In the end, it’s rare to find a $200 billion-plus market cap company that still has some growth left in it. Wal-Mart could be just that company, and its near-3% dividend yield offers meaningful downside protection.