Investors are excited WalmartIt is (NYSE:WMT) 3-for-1 stock split planned for the end of this month. When companies split their shares, it usually indicates that management believes the company is in a growth phase. Split stocks are typically industry leaders with proven track records, and some data supports the idea that split stocks perform well over time. Stock splits themselves do nothing to the stock other than break it up into smaller pieces.
However, something else happened to Walmart stock recently that has real implications for shareholders and indicates a much higher value. In 2023, Walmart has become the king of dividends.
Why is this important news?
Companies become dividend kings when they pay and increase their dividends for 50 consecutive years. Walmart raised its dividend for the 50th time since 1974 last year, when it raised it 2%, to $2.28 per quarter.
Dividend Kings are an exclusive class of stocks that indicate strength and reliability. A lot can happen in 50 years, and many businesses don't last that long. Even those that do typically experience ups and downs that could impact their performance and their ability to generate enough cash to operate and cover their dividends.
Any company that can withstand the effects of 50 years of business while still growing its dividends has proven itself to be trustworthy when it comes to passive income.
When evaluating a dividend, investors typically look at its yield. This is certainly an important factor, and high-yielding dividends have a place in many investors' portfolios. But there's more to a dividend stock than just its yield. In fact, if the yield is too high, it should alert investors to the potential risk. Not all dividend paying stocks are established and reliable. Some of them suspend their dividends and others go bankrupt.
Others might be good candidates because they always pay, but don't always increase their dividends. This could mean there are problems internally or that the dividend is not a priority. Companies that increase their dividends every year are committed to creating value for their shareholders.
Does Walmart pay a high dividend?
At first glance, Walmart's dividend isn't great. It yields 1.35% at the current price, which is lower than S&P500 average. It actually fell slightly since yield works inversely to price action, and Walmart's stock jumped on news of its stock split.
But based on the other important factors that indicate a good dividend, Walmart's dividend checks all the boxes. Walmart is the largest American company in terms of sales, by far, with $639 billion. Amazon continues to follow it in second place, with $554 billion. It generates a steady cash flow that drives business and the dividend. This is not a growth stockand dividend is one of the ways it attracts investors and creates shareholder value.
Can Walmart continue like this?
One reason management may have decided now is the right time for a stock split is because Walmart is performing superbly. Sales increased 5.2% year over year during the third quarter of fiscal 2024 (ended October 31), driven by a 4.9% increase in comparable sales. Free cash flow increased from $0.7 billion last year to $4.3 billion this year.
With its strong brand, leadership position, and this type of performance, investors can expect Walmart to continue paying and growing its dividend. The stock split is a further indication that Walmart is a well-established company, and the dividend is the tangible result.
Walmart's dividend is reliable and growing, and investors can count on this to continue for the foreseeable future, making it a great choice for a dividend stock. If Walmart's stock split caught your attention and made the stock look like a buying candidate, consider it instead for its reliable long-term dividend stability.
Should you invest $1,000 in Walmart right now?
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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. Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Amazon and Walmart. The Motley Fool has a disclosure policy.
Excited about Walmart's stock split? Something much better just happened to Walmart stock, and it doesn't get talked about enough. was originally published by The Motley Fool