The retail giant is well-suited to the current moment.
The coronavirus crisis has turned ordinary business and daily life upside-down in the U.S.
Millions of Americans who would normally go to offices for work are staying home. Schools across the country are closed, and many Americans are under stay-at-home orders, kept inside almost all hours of the day.
Normal shopping patterns have been disrupted as stores and restaurants have closed, but the pandemic has also sparked a run on food and essentials like cleaning supplies and toilet paper, as Americans have stocked up on such products for what many believe will be weeks of hunkering down inside their homes. As the country’s largest grocer, Walmart (NYSE:WMT) figures to be a big winner from this trend. Rival Target recently gave an example of how shopping habits have changed, saying that comparable sales in food and beverage have jumped more than 50% through March, while comparable sales of apparel and accessories were down more than 20%.
Walmart, which derives more than 50% of its sales from groceries, will benefit more from this trend than Target, and unlike stand-alone grocers, the retail giant can also capitalize on consumers looking to pick up items like electronics, tools, or home office needs.
In a normal business environment, Walmart would be a strong candidate for any retiree’s portfolio, but with the current uncertainty around the coronavirus, the company’s strengths truly shine.
Recession-proof and coronavirus-proof
Though Walmart has yet to reveal specific numbers on its business in recent weeks, there are clear signs that the company has been busy with an uptick in demand from the crisis. Earlier this week, the company said it was hiring 150,000 employees, including full-time, part-time, and temporary positions. It’s also offering special bonuses to employees during the crisis for their hard work and dedication, and is closing some stores early in order to allow for more time to restock essential items and for employees to clean the stores.
No one knows exactly how long the crisis will last, but Walmart should continue to see strong sales for the duration, as Americans rely on grocery stores for nearly all their meals now and look to stores like Walmart for its value and wide range of products.
But what also makes Walmart rock-solid during these uncertain times is that the company is especially durable in a recession. It’s made its reputation on everyday low prices, and has the economies of scale to help ensure them. Though we don’t know exactly where the economy is headed, forecasters expect GDP to plunge in the second quarter, and Federal Reserve Chairman Jerome Powell said that we may already be in a recession. As consumers avoid spending on discretionary items and focus on low-priced necessities, Walmart will continue to deliver. At the height of financial crisis, during the fiscal year that ended in January 2009, Walmart still generated a 3.5% increase in U.S. same-store sales.
Both the coronavirus and the recession should allow the company to gain market share and eliminate competitors, especially those that have been forced to close stores.
A reliable dividend
Not only is Walmart a rock-solid business in times like these, but the company is one of the most reliable dividend stocks on the market. It’s a Dividend Aristocrat, meaning it has paid increasing dividends every year for at least 25 years. In Walmart’s case, it’s raised its dividend 47 years in a row.
Today, the company offers a dividend yield of 2%. Recent increases have been modest as the company has invested in grocery pickup expansion and other e-commerce initiatives, but investors can count on the quarterly payout to keep coming as Walmart has a conservative payout ratio of less than 50%.
Put it all together, and Walmart looks like the perfect defensive stock for the current environment. The retailer should be able to outperform competitors and the stock market during both the health crisis and the expected recession that will follow, grabbing market share along the way, and delivering reliable returns for investors.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.