Discount superstore Wal-Mart Stores, Inc. (NYSE:WMT) has seen its share price wobble over the last three months as investors questioned whether its days at the top of retail stocks were numbered. The rise of e-commerce has put brick-and-mortar stores like Walmart in a precarious position and it has given traders reason to be skeptical. However, for long-term investors, there’s no better time than now to add WMT stock to your portfolio.
One of the major reasons to add Walmart stock to your portfolio is that the company pays a reliable dividend that has been able to survive even in the worst financial conditions.
WMT’s dividend yield of 2.8% may not be the highest out there, but the firm’s payout ratio is a comfortable 42.89% so it’s unlikely to vanish any time soon, even in the case of a macroeconomic event.
Not only that, but Walmart has also consistently raised its dividend each year, so that figure is likely to continue rising. Add to that the fact that WMT stock has a price-to-earnings ratio of just 15.5%, and you can start to see why the firm’s shares look like a bargain.
It’s rare to see such a large, well known company with a steady dividend payout and such a low P/E. But in the case of Walmart, worries about the fate of brick-and-mortar retailers have sent shares plummeting.
Having WMT stock in your portfolio is also a good defensive play. The company’s bread and butter is consumer staples and its M.O. is low cost goods. That makes Walmart stock a pretty safe bet in an economic downturn.
While many are praising President Trump’s policies, some are betting that we will see the U.S. economy take a turn for the worst in the coming four years, so holding WMT stock might be a good insurance policy.
WMT Stock: There Is Hope at the End of the Tunnel
Perhaps the biggest reason that WMT stock has turned investors off has been the threat of competition from e-commerce leaders like Amazon.com, Inc. (NASDAQ:AMZN). While it’s true that growth in online shopping has been an anchor for Walmart stock (and several other retail stocks), the firm has made big investments in e-commerce, which are only just beginning to pay off.
WMT acquired Jet.com this year for $3.3 billion, showing that the company is striving to better its online offerings. A revamped online shopping experience that focused on ease of use and customer satisfaction appeared to be a solid upgrade in the company’s most recent earnings report, which showed that online sales rose 20.6%.
Walmart is betting big on its e-commerce arm, but the firm isn’t stopping there. It’s clear that consumers are losing interest in big-box stores that they have to navigate in order to complete their purchase. To combat this, WMT has been working on new store formats that cater to the growing demand for combination online/physical shopping experiences.
While this represents a departure from the store’s typical format, Walmart’s long-running experience means the company is well acquainted with warehouses, distribution centers and transportation.
The firm recently began testing a Pickup and Fuel location that offers a gas station, convenience store and a drive-through where customers can pick up their online grocery orders. This concept could help WMT get ahead of Amazon when it comes to online grocery shopping.
Unlike some of the retail stocks AMZN competes with, it needs to start from scratch with refrigerated trucks, special warehouses and all the planning that goes into transporting fresh food. Walmart, however, already has all that infrastructure in place.
WMT is also building out its click-and-collect service, which allows customers to order online and pick up their goods curbside at their nearest location.
Bottom Line on Walmart Stock
This holiday season will be a good barometer for Walmart’s success in setting up its business for future growth. If WMT can deliver a stress-free holiday shopping experience for the hordes of last-minute shoppers hoping to buy online, the company is likely to hook people in.
On the contrary, if Walmart’s relatively new online shopping experience proves cumbersome, it will be an uphill battle to get customers to try the service again.
WMT stock certainly has its fair share of headwinds, but the company isn’t as bad as investors make it out to be. This coming year is likely to be a great year for Walmart stock as the company finally comes out from under the dark shadow that Amazon has cast.
Investors who are willing to wait out a few bumps in the road can pick up WMT stock now before the company’s P/E climbs alongside expectations for the firm’s future.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
