This Dividend Stalwart is Crushing the Market… and It’s Going Higher

Now that the stock market crash from earlier this month has vanished, it’s time to get back to business.

Hopefully you heeded our data-driven advice and bought stocks during the volatility scare.

While that note was bullish from a broad-based perspective, today I want to drill down on one of my favorite stocks this year that just announced an incredible earnings report, retail giant Walmart (WMT). (Disclosure, I own shares of WMT.)

The storied discount retailer offered a glimpse into the health of the consumer. And it was about as upbeat as it can get.

This sent shares vaulting 6.58% on Thursday, easily cruising to all-time highs.

Today we’ll unpack the latest numbers, drill down on why this company is one of the best-performing stocks in the market, then reveal why it’s poised for more gains in the months ahead.

Rarely can you find dividend growth alongside a booming staples business. That’s what puts Walmart in a category all its own.

Walmart’s Partying Like It’s 1999
Stocks are having a big year. At last measure, the S&P 500 clocked a 15% gain through mid-August. Not bad.

But did you know that Walmart is up 40% over the same time frame? In fact, WMT is the 31st best-performing S&P 500 stock in 2024.

Typically, folks associate Walmart as a stock your grandma would own, given its reliable dividend and defensive business that performs regardless of the economic climate.

To see the shares vault 40% is an anomaly, to say the least. Walmart shares haven’t seen performance like this at this point in the year in 25 years:

Now, why is this dependable staple company surging like a growth stock?

It all comes down to its glowing outlook. On Thursday the company reported second-quarter earnings, which showed that revenues climbed to $169.34 billion and adjusted EPS clocked in at $0.67:

Source: Walmart Q2 Earnings Release SEC Filing

Operating income on an adjusted basis also grew 7.2% to $7.9 billion.

But what caught analysts by surprise is the strong forward guidance for full-year 2025. Walmart raised its fiscal-year EPS mid-point to $2.39, from the prior guidance midpoint of $2.30. That’s a complete rerating for a company that typically has growth targets well understood (and expected) by analysts.

Some other positive hits from the earnings release were the 21% e-commerce sales growth and 26% global advertising business growth.

But the key to any stock’s forward performance comes down to two words: earnings growth. If earnings are set to rip, the stock is going to follow.

Diving into the forward estimates, we can see that the top brass on Wall Street have a bright outlook on Walmart, with forecasted EPS growth of 9.7% in 2025 and another 11.5% in 2026.

Average those out and you’re staring at a double-digit growth story. That is fuel to get WMT shares moving northbound.

Note how in 2023 net income stood at $11.7 billion while EPS came in at $1.91. By 2026, estimates peg net income at $21.5 billion and EPS at $3.00:

Now that we understand the momentum backdrop is being powered by a healthy fundamental foundation, let’s look at one historical datapoint that signals more gains are likely ahead.

It’s all about seasonality. When we go back 20 years and isolate the three-month period of September to November, Walmart shares see positive average returns in each of these months with:

• September averaging 0.5% gains
• October notching 2.2% average gains
• And November climbing an average of 2.4% gains

Check it out:

All signs are pointing up for Walmart shares near- and long-term, but there’s one more tailwind to add.

For this we have to circle back to a study we did back in November when we began a gameplan ahead of the eventual Federal Reserve rate cuts.

Back then we showcased how dividend stalwarts Walmart (WMT), Coca-Cola (KO), and Johnson & Johnson (JNJ) have a history of strong performance in falling-interest-rate regimes.

It should come as no surprise that income-thirsty investors will seek dividend growth once 5%-plus money market yields collapse.

There you have it. We’re staring at the best year-to-date performance in 25-plus years, a recent earnings report with upward guidance, seasonal strength, and interest-rate tailwinds… The evidence is pointing to Walmart being just as much of a “Great Value” as its store brand of the same name.

Or, over at Kmart, you might have called it the stock market blue light special!

Regards,

Lucas Downey
Contributing Editor, TradeSmith Daily

Source: Trade Smith