Walmart (WMT -2.54%) investors have had an incredible run since the pandemic started roughly five years ago. The retailer's share prices have more than doubled since mid-June 2022, tripling the broader market's comparable performance. Shareholders also arguably endured relatively low risk holding a stock with a consumer staples focus, a massive global sales base, and a sturdy annual profit performance. Toss in reinvested dividends, and the total return from holding Walmart stock over the past five years was 125%.
Shares are valued at a bigger premium now, though. And there are new risks regarding an economic slowdown pinching the business. Yet Walmart still could deliver solid returns from here. Let's look at why this retail stock might beat the market again over the next several years.
Growth through the years
Walmart is no longer just a retailer that uses its scale to deliver ultra-low prices to value-seeking shoppers. Sure, that core customer remains a big part of its growth. The chain posted a 5% comparable-store sales spike last year thanks to 3% higher customer traffic and a 2% uptick in average spending. "We have momentum driven by our low prices," CEO Doug McMillon told investors in late February.
NYSE: WMT
Key Data Points
Yet Walmart is also finding growth in attractive areas like e-commerce and digital advertising. The e-commerce channel jumped 20% in the most recent quarter. Advertising was up 29%.
There's a long runway for growth ahead in Walmart's core business and these newer sales avenues. And, any progress at speeding overall revenue gains toward the high single digits from this past year's 6% rate would translate into better stock returns.
Cash returns
Walmart paid its shareholders $6.6 billion in dividends last year and spent a further $4.5 billion on stock buybacks. Investors have every reason to expect increasing direct cash returns from here that will support the share price over the next several years.
Start with the dividend, which was just hiked by 13% to $0.94 per share. Sure, that payout still amounts to a relatively modest 1% yield. But it is growing quickly. And Walmart hasn't missed an annual raise in 52 years, making it a member of the Dividend King club.
These cash returns should help buffer your portfolio from normal stock market volatility and the ups and downs of the economic growth cycle. Walmart generates ample excess cash from the business, too, which management is happy to direct toward stock buybacks. Free cash flow was a healthy $13 billion last year, in fact.
Risks and valuation
Walmart stock wasn't immune to the recent market slump, a good reminder that the retailer's business is sensitive to economic swings. A recession would pressure sales and profits as shoppers pull back on spending, especially in discretionary products like consumer electronics.
Walmart's premium stock valuation is the other key risk to watch. It's true that shares have come down from their recent highs. However, the current price-to-sales ratio of 1 is still higher than the 0.75 times sales valuation that was available for investors through most of the past five years.
Risk-averse investors might want to watch the stock for a chance to buy Walmart at a lower valuation. Such an opportunity might have arisen this week as Walmart stock fell 7% last week following the Trump administration's "Liberation Day" tariff announcement. Yet you're still likely to enjoy good returns from here. The retailer's customer traffic rates are strong, profitability is rising, and growth seems set to accelerate over the next several years.
There are more exciting stocks out there, of course. But there's a lot of value in the type of steady sales growth and rising dividend income that Walmart shares provide.
