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Harsh Jain
Harsh Jain
Articles (175) 

Walmart: Is It Time to Dump This Dividend Aristocrat?

The retailer's online sales continue growing at a strong pace

October 12, 2017 | About:

Walmart Stores Inc. (NYSE:WMT) has displayed a healthy performance this year as it is up nearly 25% year to date. The primary reason behind the retail giant’s strong showing is its continuously growing online sales. Although many retailers are struggling to sustain in the changing industry, Walmart is not one of them.

It is well known that Amazon (NASDAQ:AMZN) rules the e-commerce world, but Walmart appears to be the only major retailer able to compete with Amazon efficiently. In the last quarter, the retail giant’s online sales surged more than 60%. The company’s online sales are far away from nearing their peak as it expects a 40% surge next year.

When Walmart acquired e-commerce startup Jet.com for $3.3 billion last year, many eyebrows were raised over whether the company had overpaid for an unprofitable e-commerce startup. But the retail giant’s healthy performance and its impressive progress in e-commerce illustrate that the acquisition, even at the higher price, was the correct decision.

The company is aggressively focusing on enhancing its online shopping experience as it has substantially increased the number of products available online. It offers more than 65 million products on its website, up from 15 million a year ago. It has also introduced a new way of returning online orders to its brick-and-mortar stores.

Walmart has been acquiring trivial online retailers to grow its presence in the e-commerce market. The retail giant recently publicized that it has purchased the logistics startup “Parcel.” The acquisition will help it launch new same-day delivery service in New York City.

On the other hand, one of the most significant factors affecting Walmart’s online sales is the growth of online grocery sales. Though the retailer has not disclosed online grocery sales figures, it continues to open new stores that offer online grocery ordering. It currently has more than 1,000 locations that offer online grocery ordering and plans to add another 1,000 locations in 2018.

Walmart holds a leading position in the online grocery ordering space, but it will undoubtedly face fierce competition from Amazon in the coming quarters. Keeping in mind the acquisition of Whole Foods, it is possible that Amazon could disrupt Walmart’s early lead in online grocery sales.

In all, Walmart’s continuously growing online sales will positively impact its earnings growth going forward which in turn could result in robust dividend growth as well. As a matter of fact, the retail giant has increased its dividend for 44 consecutive years, and it will not let its impressive streak disrupt anytime soon.

Although the retailer generates the majority of its revenue from the domestic market, it continues expanding its footprint in the international market. The company plans to open hundreds of new international stores in the next two years. Apart from this, the retailer also publicized a $20 billion share repurchase over the next two years.

Summing up

Walmart is headed in the right direction, which can be verified by looking at its share price. The retail giant has massive cash flow which allows it to invest in its future growth. The company is spending a huge amount of cash to grow its online sales which in turn is weighing down its margins and operating income.

Once things settle down, the retailer could see a significant improvement in both metrics. It continues making substantial enhancements in the customer experience which should boost online sales going forward. On the other hand, the company also offers a high dividend yield of 2.38 (ttm).

As a result, shareholders should continue holding the stock as its future still looks promising.

Disclosure: No positions in the stocks mentioned in this article.


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