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The 5 Safest Dividend Stocks Part 1: Walmart
03/30/2020 5:00 am EST
In this series that will run through this week, we will examine our selections for the five safest dividend stocks around. The five dividend stocks examined in this series have a unique mix of characteristics, notes income expert Ben Reynolds, editor of Sure Dividend.
First, they are all Dividend Aristocrats. Dividend Aristocrats are securities with 25+ years of consecutive dividend increases in the S&P 500. Also, all five of the securities analyzed in this series had lower drawdowns than the S&P 500 during both The Great Recession and the recent Coronavirus Crisis.
The first safe dividend stock in the series is Walmart (WMT). Walmart is the largest retailer in the world, serving 270 million customers each week. Revenue will be well in excess of $500 billion this year and the stock trades with a market capitalization above $300 billion.
Walmart is arguably one of the safest dividend stocks, because of its extremely recession-resistant business model. During a recession, in which economies contract, stock markets drop, and the unemployment rate rises, few industries are spared.
But the deep discount retail industry — which Walmart dominates — is one of the very few outperformers in an economic downturn. If anything, it could be argued that Walmart actually benefits from a recession.
When times are tough, cash-strapped consumers typically scale down their spending. Since Walmart has always retained its status as the low-price leader in retail, its sales and profits actually rise in a recession.
For example, consider Walmart’s performance during the last economic downturn in the U.S., known as the Great Recession of 2008-2009.
In fact, from 2007-2010 Walmart’s net sales grew from $345 billion to $405 billion, representing 17% growth in the worst economic downturn since the Great Depression. Walmart’s earnings-per-share increased every year as well, from $2.93 in 2007 to $3.73 in 2010.
We believe Walmart will continue to generate strong profits even if the U.S. is on the brink of a severe recession. Its dividend should continue to grow as well.
The current annual dividend payout of $2.16 per share constituted 44% of Walmart’s 2019 adjusted earnings-per-share of $4.93, meaning even a significant decline in EPS is unlikely to endanger the dividend payout. And again, this seems unlikely, given Walmart’s tendency to benefit from recessions.
If the U.S. enters a severe recession, Walmart will survive relatively unscathed, particularly when compared with other retailers. Walmart should continue to grow after any recession that might occur, thanks to its investments in growth initiatives such as e-commerce.
Walmart’s U.S. e-commerce sales increased 35% in the fourth quarter, and 37% for last fiscal year. Now that it has built a large e-commerce platform, Walmart is positioned to perform relatively well even as multiple large cities go on lockdown due to the coronavirus. While many stores have closed, Walmart will continue to see strong results in its e-commerce sales.
Walmart is a Dividend Aristocrat, having increased its dividend for 47 consecutive years. Its long history of annual dividend hikes shows that it is a shareholder-friendly company, committed to providing investors with rising dividends every year, regardless of the economic climate. This bodes well for the likelihood of future rising dividend payments far into the future.
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