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

Walmart(NYSE: WMT) has risen a staggering 43.2% year to date, pushing 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 it’s a bargain.

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-focused companies have been hit hard by the double whammy of higher interest rates and an uncertain macroeconomic outlook. Recent earnings calls from consumer-focused companies from Home Depot And Lowe’s Unpleasant Lululemon Athletics and show more how cautious consumers have become: they are spending less on unforeseen purchases, such as 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 that it’s growing faster than expected. The company raised its full fiscal 2025 results for the second time – forecasting consolidated net sales growth of 3.75% to 4.75%, consolidated adjusted operating profit 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% consolidated sales growth, 4% to 6% consolidated operating profit growth and $2.23 to $2.37 in adjusted EPS. So the low end of Walmart’s new guidance is actually the high end of its original guidance.

Walmart is beating expectations, while many other companies are lowering their expectations and reporting worse-than-expected results.

Most importantly, there are plenty of signs that Walmart can maintain or even accelerate its growth pace in the coming years.

Shifting to a higher gear

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

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

Walmart’s investments are already paying off. In the most recent quarter, Walmart’s U.S. e-commerce sales grew 22% and Walmart Connect ad sales grew 30%. Walmart Connect allows advertisers to leverage 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 grew 18% and ad sales grew 23%.

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 said the following during the second quarter earnings call:

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

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

In short, Walmart is delivering results and seeing measurable effects from its long-term investments. It is becoming a better company 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 excellent as Walmart’s performance has been, its earnings or dividends have not grown at the same rate as its stock price. And when a stock price outpaces earnings and dividend growth, the valuation of that stock becomes more expensive and the dividend yield falls.

Not surprisingly, 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

Additionally, Walmart’s dividend yield has shrunk to a meager 1.1%, which is lower than the S&P 500‘s 1.3% yield. Walmart is no longer a viable source of passive income, at least for now.

A great company with a high price tag

Walmart is no longer a value stock and is now priced as a hybrid of growth and value. Investors looking for higher yields can find many more attractive options in the Dow, such as Chevron And Coca Cola.

However, those who believe in Walmart’s vision and agree with the higher capex could still consider the stock a long-term investment. Walmart isn’t cheap, but it is increasing its dividend and buying back shares faster than in previous years. Earnings growth is impressive and could accelerate once macro conditions improve.

Walmart is riding high and has been going up for good reasons. But the stock has gotten pretty expensive, making it ideal for risk-tolerant investors or people who care more about where the stock is in three to five years than where it is now.

Should You Invest $1,000 in Walmart Now?

Before you buy Walmart stock, consider the following:

The Motley Fool Stock Advisor team of analysts has just identified what they think is the 10 best stocks for investors to buy now… and Walmart wasn’t one of them. The 10 stocks that made the cut could deliver monster returns in the years to come.

Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $792,725!*