The retail industry is holding steady in 2024, with global sales expected to hit $30.6 trillion, up 4.37% from last year. In the U.S., retail sales are projected to grow 2.78% year-over-year to $8.53 trillion.
But the recent Q3 earnings reports from Walmart (WMT) and Target (TGT) show just how different things can look within the same sector. Target’s stock took a nosedive, dropping nearly 22% on Nov. 20 after missing revenue estimates and reporting a 12% drop in net income to $854 million. Meanwhile, Walmart hit new all-time highs after its quarterly report, with revenue soaring to $169.59 billion and e-commerce sales jumping 27%.
For dividend investors, this creates an interesting choice. Target’s yield is a tempting 3.43%, especially with its history of over 50 years of dividend increases - but that generous yield is because its stock is struggling, hitting its lowest point since late 2023.
On the other hand, Walmart’s yield has now shrunk below 1% due to its stock rally, but it continues to gain market share, particularly among higher-income shoppers earning over $100,000 annually. Both companies are Dividend Kings with decades-long streaks of increasing payouts, but their current trajectories couldn’t be more different.
So, which is the better buy for income investors? Let’s dig deeper to see which one fits your portfolio better.
The Case for Walmart Inc. (WMT)
Valued at $726 billion by market cap, Walmart (WMT) is the largest retailer in the world by revenue, running a mix of hypermarkets, discount stores, and grocery outlets, along with its digital presence. Its business model is simple: sell a wide variety of products at consistently low prices. By using its massive buying power and efficient supply chain, Walmart keeps costs down for customers. This strategy has made it a go-to for budget-conscious shoppers, and a leader in the retail industry.
In 2024, WMT stock has been an outperformer, climbing an impressive 74% year-to-date. Over the past month alone, it’s up 10.8%.
Compared to Target, in particular, Walmart’s performance stands out. However, its forward price/earnings (P/E) ratio of 36.12 is much higher than Target’s, as well as the retail sector’s average of 17.64, which means investors are paying a premium for WMT's stability and growth potential at current levels.
On the dividend side, Walmart yields a modest 0.93% currently, backed by 52 years of consecutive growth. Its modest payout ratio of just 33% makes Walmart stock a reliable income pick for long-term investors.
In its third quarter fiscal 2025 report, Walmart exceeded analysts' expectations with consolidated revenue of $169.6 billion, up 5.5% year-over-year. The company reported adjusted EPS of $0.58, also surpassing estimates.
Notably, Walmart's e-commerce and advertising segments reported substantial growth, with increases of 27% and 28%, respectively. Looking ahead, the company raised its fiscal 2025 outlook, projecting sales growth between 4.8% to 5.1% and adjusted EPS in the range of $2.42 to $2.47.
Walmart continues to innovate and expand its services. The company recently launched a nationwide same-day pharmacy delivery service, integrating prescription medications with general merchandise orders. This initiative, set to reach 49 states by early 2025, demonstrates Walmart's commitment to enhancing customer convenience.
Additionally, Walmart's investment in 74 community solar projects in Maryland and Illinois underscores its focus on sustainability and cost reduction for low-income households.
Analysts maintain a strongly bullish stance on WMT stock, with 29 out of 36 in coverage recommending a “strong buy,” 4 suggesting a “moderate buy,” and 3 advising a “hold.” The mean target price is $95.49, implying a potential upside of about 4% from current prices.
With robust revenue streams and a strong balance sheet, Walmart is positioned as a "safe haven" stock amid economic uncertainty. For income investors, however, the sub-1% yield and steeper P/E ratio may be a drawback.
The Case for Target Corporation (TGT)
Target (TGT) is one of the biggest names in U.S. retail, running stores that sell everything from groceries to clothing and home goods. Known for its "Expect More. Pay Less." slogan, it’s built a strong reputation for offering affordable, trendy products and an enjoyable shopping experience.
However, 2024 hasn’t been kind to Target’s stock as consumers have traded down. While Walmart has soared, Target has struggled. TGT is down 10.6% year-to-date, including an 18.3% correction over just the past five sessions.
Despite these challenges, Target still holds a solid position in the market, with a $57.5 billion valuation. The stock is cheap at current levels, too, with its forward adjusted P/E ratio of 15.05 much lower than WMT's, and also a discount to the sector median - making it look like a potential bargain for value investors.
For those focused on income, Target’s forward dividend yield of 3.43% is a standout compared to Walmart’s modest 0.92%. With 54 straight years of dividend increases and a sustainable payout ratio below 50%, it remains a Dividend King and an attractive choice for income-focused portfolios.
Target’s third-quarter results were a mixed bag. While comparable sales increased by 0.3%, driven by a 2.4% growth in guest traffic and a 10.8% rise in digital sales, the company's earnings per share (EPS) of $1.85 fell short of expectations. This represents an 11.9% decrease compared to the previous year. The company's guidance for the fourth quarter and full year has been revised downward, with expected full-year adjusted EPS now ranging from $8.30 to $8.90.
In response to these challenges, Target is implementing strategic initiatives to drive growth and improve performance. The company recently announced a partnership with Shopify (SHOP) to expand its Target Plus marketplace, offering a curated selection of products from popular merchants. This move aims to enhance Target's digital presence and provide customers with a wider range of affordable, high-quality products.
Analysts are cautiously optimistic about Target’s future. Of the 33 analysts covering the stock, 15 rate it a “strong buy,” three call it a “moderate buy,” 14 suggest holding, and one recommends a “sell.” The average price target of $156.90 implies a potential upside of about 22.9% from its current price.
While short-term volatility may persist, Target's relatively high yield and discounted valuation at current valuations make it an intriguing "buy-the-dip" candidate for income-seeking investors who are confident in its ability to navigate the current economic climate.
The Verdict on These Dividend Kings
Target (TGT) has had a rough year, but its higher yield could be appealing if you're betting on a turnaround. That said, with Target shares still volatile after earnings, Walmart (WMT) could be the more conservative pick for dividend investors. Nevertheless, at current levels, yield-minded buyers may want to add WMT shares in smaller amounts, and relatively cautiously.
