The Best-Performing Dow Dividend Stock Is Up Over 43% Year to Date. Is There More Room to Run?

The Dow Jones Industrial Average contains 30 components, most of which are stable, blue chip, dividend-paying companies. While not known for blistering growth rates, even value-oriented Dow stocks can surprise to the upside.

Walmart (NYSE: WMT) is up a mind-numbing 43.2% year to date -- pole-vaulting its market cap above $600 billion for the first time.

Here's why Wall Street can't get enough of this dividend stock and whether or not it is a buy now.

Image source: Getty Images.

A rare winner

Faster-than-expected growth can catalyze a rising stock price -- especially when so few companies are posting impressive results. Many consumer-facing companies have been hit hard by the one-two punch of higher interest rates and an uncertain macroeconomic outlook. Recent earnings calls by consumer-facing companies from Home Depot and Lowe's to Lululemon Athletica and more shed light on just how cautious consumers have become -- pulling back on discretionary purchases such as home improvement projects, expensive vacations, and luxury apparel.

Walmart has been a beacon of strength amid an otherwise grim part of the economy. Walmart's latest earnings report (for the second quarter of fiscal year 2025) showed it is growing faster than expected. The company raised its full-year fiscal 2025 results for the second time -- calling for full-year consolidated net sales growth of 3.75% to 4.75%, consolidated adjusted operating income growth of 6.5% to 8%, and adjusted earnings per share (EPS) of $2.35 to $2.43.

Walmart's initial fiscal 2025 guidance from late February called for 3% to 4% in consolidated sales growth, 4% to 6% in consolidated operating income growth, and $2.23 to $2.37 in adjusted EPS. So, the low end of Walmart's new guidance is basically the high end of its initial guidance.

Walmart is blowing expectations out of the water when many other companies are making downward revisions to their guidance and posting worse-than-expected results.

Most importantly, plenty of signals indicate Walmart can sustain or even accelerate its growth rate for years to come.

Shifting into a higher gear

Consumers are flocking to Walmart because of its reputation for low prices and value. But there's so much more to its growth story than brand alone.

In recent years, Walmart has been ramping up capital expenditures (capex) and investing in new stores, renovations to existing stores, e-commerce, its home delivery offering called Walmart+, and more. In the last five years, Walmart's revenue is up 27.6% while its capex has nearly doubled -- illustrating that Walmart is more focused on future growth than near-term results.

Walmart's investments are already paying off. In the recent quarter, Walmart U.S. e-commerce sales grew 22% and Walmart Connect advertising sales grew 30%. Walmart Connect allows advertisers to benefit from Walmart's in-store and online presence by launching campaigns that connect sellers with buyers. Walmart's growing e-commerce business makes it an even more attractive destination for advertisers. Internationally, Walmart's e-commerce sales were up 18%, and advertising was up 23%.

Walmart has made many internal improvements to boost efficiency. For example, Walmart used generative artificial intelligence (AI) to improve its product catalog. CEO Doug McMillon said the following on the second-quarter earnings call :

We've used multiple large language models to accurately create or improve over 850 million pieces of data in the catalog. Without the use of generative AI, this work would have required nearly 100 times the current head count to complete in the same amount of time. And for associates picking online orders, showing them high-quality images of product packaging helps them quickly find what they're looking for.

Walmart has made several improvements to its supply chain to prepare for sustained e-commerce growth. More than 45% of Walmart U.S. e-commerce fulfillment center volume is automated. "While we're spending more on capex than we have historically, we're pleased with the returns from these investments, particularly the automation of our supply chain," CFO John Rainey said on the call.

In sum, Walmart is delivering results and seeing measurable impacts from its long-term investments. It is becoming a better business that can compete in a difficult market cycle and hold its own against pure-play e-commerce retailers like Amazon .

Walmart stock is expensive

As excellent as Walmart's results have been, it hasn't grown earnings or its dividend at the same rate as its stock price. And anytime a stock price outpaces earnings and dividend growth, the valuation of that stock will be more expensive, and the dividend yield will go down.

Unsurprisingly, Walmart's price-to-earnings (P/E) ratio is now significantly higher than historical averages. Even Walmart's forward P/E ratio -- which is based on analyst estimates for the next 12 months of earnings, is over 30.

WMT PE Ratio data by YCharts

What's more, Walmart's dividend yield has compressed to a paltry 1.1% -- which is lower than the S&P 500 's 1.3% yield. At least for now, Walmart is no longer a viable passive income source.

A great company with a premium price tag

Walmart is no longer a value stock and is now priced as a hybrid between growth and value. Investors looking for a higher yield can find plenty of more attractive options in the Dow -- such as Chevron and Coca-Cola .

However, those who believe in Walmart's vision and agree with its higher capex could still consider the stock as a long-term holding. Walmart isn't cheap, but it is raising its dividend and buying back stock faster than in past years. The earnings growth is impressive and could accelerate once macro conditions improve.

Walmart is firing on all cylinders and is up for good reasons. But the stock has become fairly expensive, making it ideally suited for risk-tolerant investors or folks who care more about where the stock will be in three to five years than where it is today.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Chevron, Home Depot, Lululemon Athletica, and Walmart. The Motley Fool recommends Lowe's Companies. The Motley Fool has a disclosure policy .