Walmart (NYSE: WMT) is one of the largest, most widely followed stocks on the market, yet it still manages to surprise Wall Street from time to time. Investors got an example of this when the retailer posted its Q4 earnings results in late February. That report showed some encouraging signs around growth combined with robust profit gains. Walmart also announced an unusually large dividend increase for 2024.
The report didn't dramatically shift the investing narrative around this established market leader. But there are some important things for investors to know about Walmart and its brand-new dividend payment.
1. Backed up by growth
Many national retailers, including Home Depot and Target, offer solid dividends and have boosted these payouts despite weakening sales trends. Home Depot, for example, just reported a second straight year of customer traffic declines even as it hiked its 2024 dividend by 8%. Walmart's dividend boost stands out as being covered by more impressive growth.
Comparable-store sales were up a healthy 6% in the year that ended in late January, after all. Customer traffic at the world's leading retailer rose 4%, too. Target, meanwhile, reported a 4% traffic drop in its most recent quarter (which ran through late October).
Walmart's market share gains came from its focus on cutting prices, and from improvements management has made to the shopping experience both online and in stores. "Our team delivered a great quarter," CEO Doug McMillon told investors on Feb. 20.
2. Free cash is soaring
Walmart raised its dividend by 9% this year to mark a big improvement over last year's 2% increase. That's another way in which the retailer is standing out from its peers, who have had to scale back on the pace of their hikes.
Walmart can easily afford the much higher payout. Adjusted operating profit grew at a 10% rate this past fiscal year compared to declines of about the same magnitude at Home Depot.
Cash flow trends are even more instructive, since ultimately the dividend will track that metric over time. Walmart is sitting on $10 billion of cash today and it generated $15 billion of free cash flow in fiscal 2024, up from $12 billion a year ago. The dividend is well covered by that production given the annual payout is less than $7 billion.
3. Looking out toward 2025
Investors have some good reasons to like Walmart's opportunities for growth and earnings in 2024 (the chain's fiscal 2025). It entered the year with excellent sales momentum and a light inventory position. These factors have management projecting sales will rise by between 3% and 4% this year as profits expand at a faster pace yet again.
Investors can find more impressive growth rates by looking outside of the retailing industry, of course. And Walmart's 4% profit margin sits below peers including Amazon and Target.
Yet this mature business still has the power to surprise Wall Street -- and not simply by announcing its latest stock split. The chain is growing sales by satisfying its core of value-focused shoppers. And with profits likely to outpace sales gains yet again in 2024, there's a good chance that income investors will see another solid dividend increase in early 2025.
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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. Demitri Kalogeropoulos has positions in Amazon and Home Depot. The Motley Fool has positions in and recommends Amazon, Home Depot, Target, and Walmart. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
