WMT

Income Investors, Rejoice! Walmart's Dividend Increase Is Its Biggest in Over a Decade.

Retail giant Walmart (NYSE: WMT) bucked Tuesday's market pullback, rising more than 3% as the S&P 500 declined 0.6%. The upbeat day for the megacap stock was due to the retailer's strong earnings report, which featured revenue and earnings per share significantly ahead of analysts' average forecasts.

But the one metric income investors likely focused on was the company's latest dividend increase. On Tuesday, management announced its highest quarterly dividend raise in over 10 years.

Here's a closer look at Walmart's strong earnings report and dividend increase.

Firing on all cylinders

Walmart's fourth-quarter results help explain the company's bigger-than-usual dividend increase. Revenue for the period rose 5.7% year over year to $173.4 billion. This blew away analysts' average forecast for revenue of $158.4 billion. Adjusted (non-GAAP) earnings per share for the period came in at $1.80, crushing analysts' consensus estimate of $1.53.

Also worth calling out was the company's momentum in e-commerce. Walmart's global e-commerce sales increased 23%.

Sales growth on an annualized basis at Walmart has been good, too. Its fiscal 2024 revenue rose 6%.

Looking ahead, management seems confident its top-line momentum will continue. The company guided for fiscal 2025 sales to increase 3% to 4%, compared to fiscal 2024. For Q1 specifically, management forecast 4% to 5% year-over-year sales growth.

Impressive growth

Adding to its long history of consistent dividend growth, Walmart's latest dividend hike marks its 51st consecutive year of increases. But what stands out even more is how robust that is.

The company is increasing its quarterly payout by 9%, which marks a significant acceleration from Walmart's previous pace of 2% annual increases in each of the last three years. This substantial increase is "a sign of our confidence in our growth potential and cash flow," said Walmart Chief Financial Officer David Rainey in a press release on Tuesday morning.

A reliable income stream

Speaking of cash flow, the company's recent performance on key profitability metrics adds to the dividend-growth story. Its strong cash flow appears poised to support more dividend growth for years to come.

First, consider that the company's fiscal 2024 free cash flow (cash from regular operations less capital expenditures) totaled $15.1 billion, up $3.1 billion over fiscal 2023. Equally as important, Walmart's payout ratio, or its dividend payments as a percentage of earnings, has recently fallen below 40%, its lowest level in years. This leaves plenty of room for further growth and explains why management is increasing its dividend so significantly this time around.

Given the company's financial strength, management's confidence in the company's growth potential, and a big increase in its dividend payment, Walmart is giving income investors the news they need to hear to keep holding onto shares for the long haul. The dividend announcement and strong quarterly update are timely news because some investors might have been thinking of taking profits after the stock's 24% gain since the beginning of 2023.

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Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends 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.

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