While I’m not suggesting holding just one stock because it’s risky, it’s a useful exercise to help you decide which stock you own above the rest. After all, if you could only choose one company to invest in, you should make it an amazing company. This way you can make an informed decision when building a diversified portfolio.
walmart (WMT 0.56% ), while a venerable company, hasn’t become heavyweight and indeed continues to shine. It’s time to find out how special it still is after all these years – and why it’s the one I would choose.
Attract a crowd
It’s extremely difficult for other retailers to beat Walmart’s low prices. This is because the company does everything in its power to keep costs low and passes those savings on to its customers. It’s a business that Walmart has perfected since opening its first discount store 60 years ago.
Management has also invested in technology to enable its customers to shop and receive merchandise the way they want. This includes online ordering and in-store pickup or same-day delivery. There’s Walmart+, its subscription-based service launched in September 2020 that includes free shipping and faster checkout. Plus, it offers gas discounts, which many shoppers will no doubt appreciate in these times when pump prices have skyrocketed.
The company does well in a variety of environments. Even in these days of high inflation and supply chain issues that have hurt other retailers, Walmart continues to do well. In its fourth fiscal quarter, which ended Jan. 31, sales rose nearly 8% year-over-year to $152.9 billion. This excludes sales of businesses sold since the period one year ago.
Demonstrating the company’s prowess, management expects sales growth of 4% this year and an even greater increase in operating income.
Walmart’s business also leaves it flush with free cash flow (FCF) after spending on things like supply chain, automation and customer-facing initiatives. Last year, after capital expenditures of $13.1 billion, Walmart’s FCF was $11.1 billion. That meant it could easily afford to pay the $6.2 billion in dividends.
In fact, the board has increased dividends every year since its first payout in 1974. It has long been a dividend aristocrat, which is a S&P500 company that has increased its payments for at least 25 years. At this rate, Walmart is poised to become a dividend king in a few years when it runs the half-century streak.
It’s good to know you’re putting your money in a company that can invest in growth initiatives to keep pace with Amazon ( AMZN -2.11% ) and continue to increase dividends. Additionally, the stock trades at a forward price-to-earnings ratio of 23, half the multiple of rival Costco.
While reputable retailers such as Sears Holdings and Toys R Us have filed for bankruptcy in recent years, you can sleep well owning Walmart stock. That’s because it keeps moving forward, staying relevant to its core customers. Even during the dark days of the pandemic, people continued to flock to the company’s stores and websites. That’s because shopping for bargains never goes out of style. And with Walmart investing in the future, neither are its stocks.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.