The best performing Dow dividend stocks are up more than 43% year to date. Is there more room to run?

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

Walmart (WMT 0.16%) is up 43.2% year-to-date, lifting 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’s a buy now.

Image source: Getty Images.

A rare winner

Faster-than-expected growth can catalyze a stock price rally — especially when so few companies post 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 for consumer-facing companies from Home Depot and Lowe’s TO Lululemon Athletica and more shed light on how cautious consumers have become — retreating to discretionary purchases like home improvement projects, expensive vacations and luxury clothing.

Walmart has been a beacon of strength amid an otherwise bleak part of the economy. Walmart’s latest earnings report (for the second quarter of fiscal 2025) showed it growing faster than expected. The company raised its results for fiscal 2025 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% up 8% and adjusted earnings per share (EPS) of $2.35 to $2.43.

Walmart’s initial guidance for fiscal 2025 as of the end of 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 EPS adjusted. So the bottom of Walmart’s new guide is basically the top of its original guide.

Walmart blows expectations out of the water when many other companies make downward revisions to their guidance and post worse-than-expected results.

Most importantly, plenty of signs point to Walmart being able to sustain or even accelerate its growth rate in the coming years.

Moving up a notch

Consumers flock to Walmart because of its reputation for low prices and value. But there is much more to its growth story than just the brand.

In recent years, Walmart has ramped up capital spending (capex) and invested in new stores, renovations to existing stores, e-commerce, its home delivery offering called Walmart+, and more. Over the past five years, Walmart’s revenue has grown 27.6% while its investments have nearly doubled — illustrating that Walmart is more focused on future growth than short-term results.

Walmart’s investments are already paying off. Last quarter, Walmart’s US e-commerce sales grew 22% and Walmart Connect advertising sales grew 30%. Walmart Connect allows advertisers to leverage Walmart’s in-store and online presence by launching campaigns that connect sellers with shoppers. Walmart’s growing e-commerce business makes it an even more attractive destination for advertisers. Internationally, Walmart’s e-commerce sales were up 18 percent and advertising was up 23 percent.

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

We used several large language models to accurately create or enhance over 850 million data in the catalog. Without the use of generative AI, this work would have required nearly 100 times the current number of people to complete in the same amount of time. And for associates who take orders online, 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 the continued growth of e-commerce. Over 45% of Walmart’s US e-commerce fulfillment center volume is automated. “While we are spending more on capex than we have in the past, we are pleased with the return on these investments, particularly our supply chain automation,” CFO John Rainey said on the call.

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

Walmart stock is expensive

As great as Walmart’s results have been, it hasn’t grown earnings or dividends at the same rate as its stock price. And whenever a stock’s price outpaces earnings and dividend growth, that stock’s valuation will be more expensive and its dividend yield will fall.

Not surprisingly, Walmart’s price-to-earnings (P/E) ratio is now significantly higher than historical averages. Even Walmart’s P/E ratio — which is based on analysts’ earnings estimates for the next 12 months, is over 30.

WMT PE report data by YCharts

Additionally, Walmart’s dividend yield shrank to 1.1% — which is lower than S&P 500yield of 1.3%. At least for now, Walmart is no longer a viable source of passive income.

A great company at a premium price

Walmart is no longer a value stock and is now rated as a hybrid between growth and value. Investors looking for 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 are okay with its larger capitalization may still consider the stock a long-term hold. Walmart isn’t cheap, but it’s increasing its dividend and buying back stock faster than in years past. Earnings growth is impressive and could accelerate once macro conditions improve.

Walmart is firing on all cylinders and is open for good reason. But the stock has become quite expensive, making it ideal for risk-tolerant investors or those who care more about where the stock will be in three to five years than where it is today.