Walmart (NYSE:) doesn’t need much explaining. This retail giant has the highest revenues.

To put Walmart’s size into perspective, 90% of Americans live within 10 miles of a Walmart store. If the company were a country, it would rank 24th in terms of its sales against other countries’ GDP.

Its investors have been greatly rewarded over the years as the company has grown throughout its history. Walmart is now focusing on growth, despite being primarily a dividend-oriented stock. The company boasts 48 consecutive years of annual dividend increases.

As a result, future earnings will likely grow more quickly. The stock is still a very attractive price. The stock is a strong investment. (See WMT stock charts on TipRanks)

E-commerce a Strong Growth Catalyst

Walmart has lately been concentrating its efforts to grow its online sales. Walmart is able to take a strong position, even though Amazon (NASDAQ) was already a leader in the space.

It should be able leverage its huge logistics network, as well as the multitude of retail locations, in order to effectively compete for delivery times, pricing, and other factors.

Walmart’s omnichannel and e-commerce growth has been solid over the last few years. Walmart’s online sales were further enhanced by the COVID-19 epidemic.

In its Q2 results, the company revealed that its e-commerce sales had grown by 103% compared to two years ago. Sam’s Club’s online sales also increased by 27% in the same period.

In FY2022, the company expects to have online sales of $75 billion. This would be just under 13% of the company’s total sales at its current annual run rate of $570 billion.

Walmart will likely see its margins improve as it reduces frictions and other costs associated with retail sales, as e-commerce continues to grow. Therefore, the company’s profitability should increase.

Dividend Growth And Valuation

As mentioned, Walmart features one of the longest dividend growth track records, currently counting 48 consecutive annual hikes. But, due to Walmart’s continued investment in ecommerce infrastructure and overall initiatives such as its plan to transform access to insulin, dividend growth has fallen over time.

Walmart’s DPS annual increases have been decreasing year by year, especially since 2014. In February, the latest DPS hike was 1.9%. The company is expected to produce EPS between $6.20 and $6.35 over the entire year.

At Walmart’s current annual dividend rates, this implies that the payout ratio will be below 35%. This is not about affordability. It is a question of capital allocation strategy.

Walmart currently trades at 21.9 forward P/E, which is reasonable in terms of its valuation. Walmart is not likely to change its massive valuation.

Many investors will be happy to pay a modest premium for shares. Walmart must continue to repurchase shares, as long as its valuation is fair. Walmart had purchased $5.2 Billion in shares during the first six months of this year. This is approximately 25% of its authorization program of $20 billion.

Walmart currently has a Strong Buy consensus rating based upon 18 Buys (four Hold) and zero Sells over the past three-months. At $172.48, the average WMT price target implies 19.6% upside.

Disclosure: Nikolaos Sismanis didn’t hold any positions in the securities discussed in this article at the time it was published.

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