This Notable Dividend Paying Company Is Approaching the $1 Trillion Market Cap. Should Investors Consider Purchasing Shares?
Currently, there are eight corporations with market caps surpassing $1 trillion, including: Nvidia, Apple, Microsoft, Alphabet, Amazon, Meta Platforms, Tesla, and Berkshire Hathaway.
These shares have gained recognition for their prosperity, making countless investors wealthy. However, they aren't typically known as dividend stocks, and so far, the $1 trillion club has excluded long-term dividend payers. Yet, this pattern might shift soon.
Walmart (WMT), recognized as the world's largest retailer by revenue and the largest company globally in terms of revenue, has outperformed the rest of the retail sector in recent times. Its emphasis on omnichannel sales and reputation for low prices have ensured consistent growth. In contrast, many of its competitors have struggled with inflation and weak consumer spending.
Walmart reported another set of impressive quarterly results last Tuesday. Its sales showed significant growth across all categories, with U.S. stores experiencing a 5.3% increase in comparable sales (comps). Additionally, Sam's Club, its members-only warehouse retail chain, reported a 7% increase in comps, excluding fuel.
The international segment, previously a challenge for the company, demonstrated a 12.4% increase in constant-currency revenue to $30.3 billion. Overall, revenue climbed by 5.5% to $169.6 billion, surpassing the consensus of $166.6 billion.
Walmart also saw improvements in its margins, with gross margin rising by 21 basis points to 24.2%, attributed to lower marks on U.S. store items and effective inventory management. Furthermore, the company's operating margin expanded, as operating income was up by 8.2% to $6.7 billion. Adjusted earnings per share (EPS) rose from $0.51 to $0.58, surpassing the consensus of $0.53.
Walmart's store performance was commendable, but its growth is also propelled by emerging businesses such as advertising, where revenue surged by 28%, and global e-commerce continues to thrive with sales increasing by 27% as it gains market share from competitors like Amazon.
Walmart also updated its forecast, showing increased confidence in the holiday quarter. It now estimates net sales to rise by 4.8% to 5.1% and full-year adjusted EPS between $2.42 and $2.47.
Can Walmart reach $1 trillion?
Walmart's market cap exceeded $700 billion for the first time on Tuesday, Nov. 19, bringing it closer to a $1 trillion market cap. At its current valuation, the stock would need to expand by 43%, which seems achievable given its recent growth momentum. The stock has gained 66% year to date, although repeating such a performance next year may be challenging.
At this juncture, the stock's key risk appears to be its valuation. Based on its EPS projections for this year, the stock trades at a price-to-earnings ratio of 35, which exceeds the valuation of most retail peers and places it in the league of tech giants like Microsoft and Apple that comprise the $1 trillion club.
Walmart has warranted this premium due to its remarkable performance and steadfast growth, as well as expanding margins. Ten years ago, many anticipated Walmart would succumb to Amazon's challenge, but by enhancing its omnichannel business, venturing into new growth areas like advertising, and improving its competitive advantages in areas like price and convenience, Wallmart has responded effectively.
As Walmart's valuation escalates, its dividend yield has decreased to merely 1%, but its unmatched track record of annual dividend increases, spanning 51 years, makes it a Dividend King.
Is Walmart a buy?
Walmart's third-quarter earnings report was virtually flawless, acting as a reminder to investors that the company still boasts several competitive advantages, such as economies of scale, a recession-proof business model centered on food and groceries, and growth potential in advertising, e-commerce, and more.
While the stock may appear costly at its current valuation, the company demonstrated its capacity for growth in a challenging environment during its recent report. As it focuses on general merchandise, the business appears set to continue its steady growth towards a $1 trillion market cap. If you're seeking a balance of growth and income, Walmart looks like an excellent option.
Walmart's impressive financial performance and growth potential have attracted the attention of finance-oriented individuals, making it an appealing option for investing. With its recent market cap surpassing $700 billion, many analysts are questioning if Walmart can reach the $1 trillion milestone.
Given Walmart's robust growth and its position as a Dividend King, with a 51-year track record of annual dividend increases, it could become an attractive addition to diverse investment portfolios seeking both growth and income.
