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Dividend-growth stocks have historically proven to be market-beating investments, particularly when companies sustain distribution increases over extended periods. According to academic studies, companies that consistently boost their payouts while maintaining reasonable valuations and payout ratios below 75% tend to outperform the S&P 500, especially when their five-year dividend growth rates exceed 6%.
Walmart (NYSE: WMT) stands out in this category, with its 51-year streak of dividend increases and conservative 41.4% payout ratio. However, the retail giant's shares have surged 75% over the past 12 months (as of Jan. 6, 2025), pushing its valuation well above historical averages.
Below, I'll break down the retailer's core value proposition and risk factors to determine if its shares are still worth buying at the onset of 2025.
Digital muscle flexing drives growth
The days of viewing Walmart as just another brick-and-mortar dinosaur are long gone. The retail giant has transformed its massive network of over 4,600 U.S. stores into a formidable advantage against pure-play e-commerce competitors, with home delivery now available from 4,500 locations.
The company's digital marketplace has exploded from a modest 35 million items in 2017 to an eye-popping 700 million today. Its Walmart+ subscription service, priced at $98 annually versus Amazon Prime's $139, bundles free home delivery, free shipping, fuel savings, and Paramount+ streaming access.
This comprehensive digital strategy suggests the North American retail giant isn't just adapting to the e-commerce era -- it's actively shaping the future of retail. That's a big deal in an industry forecast to reach $2 trillion in sales by 2030, according to multiple research firms.
Grocery empire fuels the engine
While competitors scramble for market share, Walmart quietly dominates U.S. grocery retail with a commanding 25% slice of the pie. This grocery stronghold generates consistent cash flow and keeps customers coming back week after week, creating a moat that even Amazon struggles to cross.
The grocery segment, accounting for roughly 60% of U.S. sales, is a natural hedge against economic uncertainty. Few competitors can match Walmart's scale, pricing power, and supplier relationships in this space, giving the company substantial firepower to fund its ambitious digital-expansion plans.
Premium price tag raises eyebrows, while income potential is meager
After its meteoric rise in 2024, Walmart's stock now commands a hefty 33.1 times forward earnings multiple. This premium valuation towers above the S&P 500's already rich 23.5 times earnings multiple, raising questions about whether the retail-giant's growth prospects justify such a steep price.