3 reasons to love Walmart’s dividend

As investors look for ways to combat uncertainty in their portfolios, one idea is to bolster it with dividend income from dividend stocks. Invest in walmart (WMT -0.83%)a sustainable chain store and grocery store that prides itself on low prices is one way to do this in a difficult economic context.

The Walmart dividend, which highlights Walmart’s resilience, has been around for decades. In fact, the company has increased this dividend every year for 50 years in a row. As investors look for high-quality dividend stocks to add to their portfolio, here are three reasons why Walmart stocks should be a top consideration.

1. Dividend growth

Walmart reminded investors of its strong balance sheet and cash flow late last month when it announced its latest dividend increase. The company said it increased its quarterly dividend by 2% to $0.57, or $2.28 annually. This cash payout gives Walmart a dividend yield of about 1.6% at the time of writing.

While this dividend yield is not particularly high, its consistency is attractive to investors. Five decades of annual dividend increases show how well this company has managed to help investors despite a wide variety of challenges and economic cycles.

Walmart’s first dividend of this increased amount will be paid April 3 to registered shareholders on March 17.

2. A low payout ratio

It’s also worth noting that Walmart pays out only about half of its earnings in dividends. Specifically, the grocer has a payout ratio of 52%. A payout ratio this conservative means the company has plenty of room to increase its dividend going forward, even if Walmart’s earnings don’t grow from here.

However, it’s worth noting that analysts expect Walmart’s revenues to grow in the coming years. On average, analysts predict an average annualized earnings per share growth rate for the next four years of about 4% for the company.

3. A sustainable company

However, the best part of Walmart’s dividend is the sustainability of the underlying business. Walmart was founded in 1962 and continues to grow its sales at meaningful rates to this day. Recall that the company’s same-store sales in the US were up 8.3% year over year (excluding fuel sales) in its most recent quarter. Sales growth at member-based wholesaler, Sam’s Club, was up 12.2% year over year – and membership was up 7.1%. Adjusted operating income for the period increased 6.9% year over year to $6.4 billion.

In other words, size hasn’t been a limiting factor for Walmart. In any case, it has developed into an important force. It gives the company more scale, allowing it to offer its customers low prices and keep them coming back. Further, these results show how Walmart has been able to grow rapidly even in this uncertain environment.

Walmart’s long history of dividend increases, a low payout ratio and its sustainable operations make the company’s stock look like a solid option for income investors to consider as a small part of their overall portfolio.

Daniel Sparks has no position in any of the stocks listed. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Walmart. The Motley Fool has a disclosure policy.

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