TGT - Dividend Corner: Is Walmart a good dividend stock pick amid recessionary fears?

2023-05-03 11:15:01 ET

As recessionary fears mount, many investors have looked towards dividends as a safety play. Walmart ( NYSE: WMT ) represents one popular consumer staple name that attracts attention when discussing this kind of investing strategy.

The retailing giant currently provides investors with a 1.51% dividend yield. Meanwhile, the stock has climbed 5.3% so far in 2023. With its focus on low-price offerings, WMT also represents a defensive play in times of economic hardship.

For a better look at Walmart's value as a dividend play, here are some details about its yield to growth, safety and history:

Dividend Yield:

In terms of yield, WMT finds itself underperforming other stocks within its sector. According to Seeking Alpha Quantitative metrics, Walmart received a grade of a D regarding its dividend yield.

See below a breakdown of the stocks' dividend yield grade :

Dividend Growth:

While Walmart's dividend yield maybe underwhelming, its dividend growth rate has outperformed those seen at its peers. WMT received an A- from Seeking Alpha’s Quant grades on this front.

Here's a breakdown of Walmart’s dividend growth grade :

Dividend Safety:

WMT’s dividend safety is still fairly solid. According to Seeking Alpha’s metrics, the stock received a B+ for this key area of concern.

See a breakdown of WMT’s dividend safety grade :

Dividend History:

On this measure, Walmart has blown away its competition as it offers 49 consecutive years of dividend payments compared to the 13-year sector median. As a result, Seeking Alpha labeled the retailer with an A+ on its consistency to pay out dividends.

See a breakdown of Walmart’s dividend consistency grade :

What Others Say:

While there might be higher yields available, investors also need to look at potential stock appreciation when judging an investment. On that front, Seeking Alpha contributors seem relatively bullish on the retail giant as they see the stock outperforming up against recessionary fears.

Contributor Muhammad Umair believes Walmart is a Buy , stating: "In the face of potential recession and economic uncertainty, Walmart Inc.'s resilience and adaptability position the company as a favorable choice for investors seeking stability."

Meanwhile, George Atuan, another SA contributor also views the company as a Buy . Atuan said: "WMT's business model has historically thrived during economic downturns, as its focus on low prices, cost efficiencies, and everyday value appeals to budget-conscious consumers seeking necessities.”

Other Options:

For investors that are not completely sold on Walmart, they can always access exposure to the company in a diversified approach through the use of exchange traded funds. WMT is owned by 255 funds. Listed below are the five funds that have the heaviest weightings towards the firm:

• VanEck Retail ETF ( RTH ) at 8.42%.
• Vanguard Consumer Staples ETF ( VDC ) at 7.59%.
• Fidelity MSCI Consumer Staples Index ETF ( FSTA ) at 7.51%.
• iShares U.S. Consumer Focused ETF ( IEDI ) at 6.81%.
• PGIM Jennison Focused Value ETF ( PJFV ) at 5.32%.

At the same time, investors can also look at some of WMT's closest competitors, which includes the likes of Costco Wholesale Corporation ( COST ), BJ's Wholesale Club Holdings  ( BJ ), and Target Corporation ( TGT ).

Moreover, for investors that are looking for broad exposure to the safety of dividends, there are many general dividend ETFs to consider as well. Some names include:

• Vanguard Dividend Appreciation ETF ( VIG )
• Vanguard High Dividend Yield Index ETF ( VYM )
• Schwab US Dividend Equity ETF ( SCHD )
• iShares Core Dividend Growth ETF ( DGRO )
• SPDR S&P Dividend ETF ( SDY )
• iShares Select Dividend ETF ( DVY )

For further analysis, see Walmart’s complete dividend score card here.

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