Dividend stocks have generated the lion’s share of returns for equity investors over the past century. The main reason for this is the compounding effect of dividend reinvestment and the generally above-average financial health of dividend-paying companies.
Within the diverse dividend stock universe, retailers are Walmart (NYSE: WMT) And Goal (NYSE:TGT) have long been among the best performing companies in the group. Both companies are valued by dividend investors for their reliable distributions, prudent capital management and first-class competitive positions in the retail environment.
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Here is a comparison of these two highest dividend stocks.
Market position and financial health
Walmart’s enormous size gives it a significant competitive advantage in the highly competitive retail industry, as its extensive store network reaches the majority of U.S. consumers. The company’s broad assortment of goods, including an extensive grocery offering, somewhat insulates it from digital competition. Target, under CEO Brian Cornell since 2014, has focused on improving the in-store shopping experience and building out omnichannel fulfillment capabilities through its “stores as hubs” model.
On the financial side of the balance sheet, Walmart is expected to grow its sales by 8.6% in fiscal years 2025 and 2026, according to Wall Street analysts. The company’s debt ratio is 75% and it generated $35 billion in operating cash flow over the past 12 months.
Target’s financial position, on the other hand, is not quite as robust. The retail giant is expected to report an 8.4% increase in sales. Waste in fiscal 2025 before posting a modest 3.6% increase in sales in fiscal 2026. The debt ratio is also a whopping 144%, suggesting the retailer has a highly leveraged balance sheet. Target generated $8.46 billion in operating cash flow over the last 12 months, which pales in comparison to Walmart’s annual operating cash flow.
Valuation, shareholder compensation and outlook
Walmart shares trade at 28.9 times expected earnings, compared to 16 times for Target and the S&P50021.5 times. Walmart offers a dividend yield of 1.19% with a payout ratio of 33%, while Target offers a higher yield of 3% but has a payout ratio of 49%. Walmart has increased the size of its dividend checks every year since 1974. Target has done so since it became a publicly traded company in 1967.
Both companies have continuously reduced the number of their outstanding shares in recent years through share buybacks. Walmart has reduced its share count by 5.7 percent and Target by 10.2 percent over the past five years.
WMT Average Diluted Shares Outstanding (Annual) data by YCharts
Both retailers face ongoing challenges from e-commerce competition. Walmart’s recent investments in supply chain automation are expected to increase margins. Target, on the other hand, remains focused on its brand image, omnichannel capabilities and unique shopping experience. The retailer is also rolling out an artificial intelligence initiative to improve its shopping experience and presumably reduce costs.
Verdict
While Target offers a higher current yield and a longer streak of dividend increases, Walmart’s stronger financial position, lower payout ratio and better growth prospects could make it a more attractive option for long-term dividend investors. However, investors prioritize current income might prefer Target because the retailer offers a much higher yield and an exceptionally long streak of dividend increases.
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George Budwell holds positions in Target. The Motley Fool holds positions in and recommends Target and Walmart. The Motley Fool has a disclosure policy.
