Shares of Walmart (NYSE: WMT), given the global instability, proved to be quite resilient to external factors. This year shares fell by only 3.8% compared to the S&P 500, which fell by 31%. While many retailers of goods have temporarily closed, grocery and household supplies of Walmart are in demand during the crisis, in physical stores, and on the Internet. This week the company even announced the creation of 150,000 new jobs.
The reasons why Walmart is a solid long-term investment:
Products and e-commerce. Although the weakness in toys and video games has damaged Walmart's fourth-quarter revenues, the strengths in food products are more important. According to the company's annual report, 56% of Walmart's revenue is from food, so positive news from the industry is important to the company as a whole. Add to that another big plus: the growth of the company's e-commerce platform, which goes hand in hand with products as more and more consumers shop online. Walmart said e-commerce sales in the U.S. grew 37 percent in fiscal 2020, and product collection and delivery added to the fourth quarter e-commerce growth. Earlier this month, the company began deploying its combined application for food and general merchandise. The Walmart Grocery application, which is part of the Walmart application, will make it easier for consumers to order a wide range of products simultaneously.
New Way to Shop? Before Coronavirus, buying products online was already gaining momentum. According to eMarketer, products are the fastest-growing category of e-commerce products in the U.S., and by 2023 they will reach $38 billion, up from nearly $20 billion last year. As the coronavirus pandemic has intensified, online product sales have also increased as consumers stay home to avoid the risk of infection. Digital Commerce 360, citing Rakuten Intelligence, reported that the dollar value of online orders increased by 210% between March 12 and 15, while the number of orders increased by 151% year on year. Will it continue after the disease disappears? The answer is likely to be "no". But some customers who have previously bought products exclusively from physical stores may switch to online shopping and continue shopping regularly. This could lead to higher growth rates than predicted before the pandemic. And this is a good sign for Walmart due to its emphasis on expanding e-commerce.
Dividends. We can count on strong dividend payments even in a downturn in the market. Not knowing how long the current downtrend will last, adding a few dividend shares to portfolios is now a good way to guarantee at least that kind of income. Walmart has been increasing its annual dividends annually since it started paying them in 1974. Over the past year, the company has paid out about 41% of its free cash capital as dividends. Although Walmart's free cash capital fell from its peak in December 2016 to its current level of $14.6 billion, it has been gradually increasing over the past 20 years. This gives us reason to be optimistic about Walmart's ability to continue its dividend policy.