This Dividend King Is on Track to Join the $1 Trillion Club. Is It a Buy?
There are currently eight publicly traded companies with market caps of $1 trillion or more: Nvidia, Apple, Microsoft, Alphabet, Amazon, Meta Platforms, Tesla, and Berkshire Hathaway.
Those stocks are highly renowned, and for good reason: They have made plenty of investors wealthy. However, none of them are particularly known as dividend stocks, and thus far the trillion-dollar club has excluded longtime dividend payers. However, that could soon change.
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Walmart (NYSE: WMT), the world’s biggest retailer and the largest company in the world by revenue, has quietly blown away the rest of the retail sector in recent years as its commitment to omnichannel sales and reputation for everyday low prices have delivered steady growth. Meanwhile, many of its peers have struggled with inflation and weak consumer spending.
Walmart reported another round of strong quarterly results on Tuesday morning. Top-line growth was strong across the board with comparable-store sales (comps) up 5.3% at U.S. stores (excluding fuel), its best performance in at least five quarters. And Sam’s Club, its members-only warehouse retail chain, reported 7% comps growth excluding fuel.
At its international segment, which has historically been a challenging segment for the company, constant-currency revenue rose 12.4% to $30.3 billion. Overall, revenue was up 5.5% to $169.6 billion, which topped the consensus at $166.6 billion.
The retailer also delivered solid margin improvement, with gross margin increasing 21 basis points to 24.2%, driven by lower markdowns in U.S. stores and strong inventory management. Overall operating margin expanded as well, as operating income was up 8.2% to $6.7 billion. Adjusted earnings per share (EPS) rose from $0.51 to $0.58, ahead of the consensus at $0.53.
Walmart’s stores performed well, but it’s also benefiting from emerging growth businesses like advertising, where revenue jumped 28%, and global e-commerce remains strong with sales up 27% as it gains market share on Amazon and other competitors.
The company also raised its guidance, showing increased confidence in the holiday quarter. It now expects net sales to rise 4.8% to 5.1% and full-year adjusted EPS of $2.42 to $2.47.
Walmart’s market cap topped $700 billion for the first time on Tuesday, Nov. 19, meaning the company is approaching a $1 trillion market cap. At its current valuation, the stock would only have to grow by 43%, which seems achievable given its recent momentum. The stock is now up 66% year to date, though it will be difficult to repeat that performance next year.
At this point, the biggest risk to the stock appears to be its valuation. Based on its EPS guidance for this year, the stock trades at a price-to-earnings ratio of 35, which is well above most of its retail peers, and puts it in league with the big tech companies that make up the trillion-dollar club like Microsoft and Apple.
Walmart has earned that premium thanks to its recent execution and its track record of steady growth and expanding margins. Ten years ago, many thought the company would be elbowed aside by Amazon, but it has responded to the challenge by building out its omnichannel business, tapping new growth opportunities like advertising, and strengthening its competitive advantages in areas like price and convenience.
As Walmart’s valuation has soared, its dividend yield has fallen to just 1%, but the company’s track record of dividend hikes is unmatched by any company in the trillion-dollar club. It has raised its dividend annually for 51 years in a row, making it a Dividend King.
Walmart’s third-quarter earnings report was virtually flawless, and it’s a reminder to investors that the company still enjoys several competitive advantages, such as economies of scale; a recession-proof business model that leans toward food and groceries; and growth opportunities in advertising, e-commerce, and beyond.
The stock might seem expensive at its current valuation, but the company has just proved its ability to grow in a difficult environment. As it sharpens its focus on general merchandise, the business looks prepared to continue its steady growth toward a $1 trillion market cap. If you’re looking for a balance of growth and income, Walmart looks like a great fit.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, Microsoft, Nvidia, Tesla, and Walmart. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
This Dividend King Is on Track to Join the $1 Trillion Club. Is It a Buy? was originally published by The Motley Fool
