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1 Incredible Reason to Buy Walmart (WMT) Stock Before It Reports Earnings on Aug. 20 -- and 1 Reason Not To
Key Points
Walmart is a dividend-paying blue chip stock.
It recently yielded 0.9%, but that payout has been growing.
The stock isn't cheap right now, though.
If you're looking for a solid blue chip stock for your portfolio, consider Walmart (NASDAQ: WMT).
Why invest in Walmart? Let's start with its dividend, which recently yielded 0.9%. That may not seem huge, but it's not far from the recent yield of the S&P 500 index, and it's a payout that has been growing -- by about 6%, on average, over the past five years.
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It's also been a solid performer, growing fairly rapidly despite its enormous size. (Its market capitalization was recently $890 billion.) Over the past decade, its shares averaged annual gains of 17%, and over the past 15 years, 14%. In its last quarter, Walmart posted revenue up 7.3% and operating income up 5%. The company is scheduled to report its second-quarter results on Aug. 20, so it's worth considering whether you want to buy before then -- in case boffo results drive the shares up.
A robust reason to consider Walmart is that the company has been adapting to the changing times. Its global e-commerce business, featuring deliveries and at-store pickups, saw revenue surge 26% year over year in the last quarter, with membership fees growing 17%. (Costco has been raking in billions annually from its membership fees, and Walmart is following suit -- though it doesn't require membership for its shoppers.)
Another plus for the company is that it's resilient in economic downturns and is less volatile than the overall market. So should a market crash or correction occur, potentially with a recession, people will still be shopping at Walmart -- and they may do so even more.
It's not all confetti and rainbows, though. There's also a reason to not invest in Walmart right now: Its shares seem overvalued. As of early August, its price-to-sales ratio was 1.24, well above its five-year average of 0.83. And the stock's forward-looking price-to-earnings (P/E) ratio of 38 was well above its five-year average of 27. You might do well if you buy and hold for a long time, but you'll reduce your risk if you wait for a lower valuation.
Selena Maranjian has positions in Costco Wholesale. The Motley Fool has positions in and recommends Costco Wholesale and Walmart. The Motley Fool has a disclosure policy.