Why Is Dividend King Stock Walmart Hitting an All-Time High While Target Plummets to a 52-Week Low?

Walmart (WMT 2.02%) and Target (TGT -3.05%) are two well-known big-box retailers competing in various product categories. Many Walmart and Target stores feature grocery sections and a mix of staples and discretionary goods.

However, these two companies also have their share of differences, and so do their stock prices. Walmart just hit an all-time high and is up a mind-numbing 72% year to date, while Target is near a 52-week low — and down about 12% year to date.

Here’s what separates the two companies and whether either dividend stock is a buy now.

From precise predictions to guidance gaps

Walmart is consistently exceeding expectations, whereas Target is consistently unpredictable. Here’s a look at how Walmart’s guidance has changed over the last three quarters compared to Target’s. Note that Walmart’s and Target’s fiscal years both end on Jan. 31, but Walmart is in its 2025 fiscal year, whereas Target is in fiscal 2024.

Data source: Walmart.

Data source: Target.

Walmart has consistently raised its guidance each quarter, whereas Target initially raised its guidance, then lowered it below its initial estimate.

Digging into the numbers

Walmart and Target have dealt with and are dealing with many of the same challenges. Inflation and supply chain challenges have thrown a wrench in forecasting and inventory management. Walmart had some setbacks but recovered quickly. Target did not. Retailers have been dealing with weaker consumer spending, especially on discretionary goods. Target has a more discretionary mix than Walmart, but not to the point where Target should be underperforming Walmart by so much.

Target blamed higher costs, weak demand, port delays, and even weather for its poor results. It also discussed how customers pulled back on spending leading up to and after its record Target Circle promotion week, which shows a lack of pricing power.

By comparison, Walmart has done a masterful job living by its mantra to provide “everyday low prices.” Sure, Walmart has promotions and deals, too. However, the brand identity of Walmart is that you can go there anytime to shop for anything and get the best price. That ultra-valuable characteristic has shined exceptionally bright recently as discount retailers like Dollar General and Dollar Tree hover around five-year lows.

Walmart is in the sweet spot where it can manage costs and compete with prices of other discount retailers while also offering enough value for its discretionary products that it can cater to cost-conscious consumers.

The secret sauce is that Walmart has leaned into higher-income consumers. It knows there are only so many cost cuts it can make on low-margin items like groceries before it becomes a losing endeavor. So, it has invested heavily in growing its e-commerce offering and has built out in-store pickup and home delivery.

Walmart’s investments in omnichannel growth are paying off big time, as e-commerce contributed 290 basis points of the 530-basis point increase in Walmart’s U.S. comparable sales growth for the quarter. In sum, Walmart has tapped into margin expansion by proving convenience and value on all goods, helping diversify its customer base.

Target remains a passive-income powerhouse

Walmart is a far better company than Target right now, but that doesn’t automatically make it a better buy. Walmart and Target are both Dividend Kings — meaning they have paid and raised their dividends for at least 50 consecutive years. But Walmart yields just 1% compared to 3.7% for Target — namely because Target has raised its dividend more than Walmart in recent years and Walmart’s year-to-date stock price increase has pushed down its yield.

Walmart has historically commanded a premium valuation to Target, which makes sense because it is a much larger and more efficient business. But right now, Target sports a price-to-earnings (P/E) ratio and a forward P/E ratio below its historical averages, whereas Walmart’s P/E ratio and forward P/E are both above its historical averages.

WMT PE Ratio data by YCharts

The discrepancy indicates that investors are feeling relatively pessimistic about Target and optimistic about Walmart.

The better buy

Walmart and Target are going to appeal to completely different investors. Walmart may be a Dividend King, but it has become more of a growth stock than an income or value stock. So, Walmart may be a good fit for investors who don’t mind paying up for a quality company that can thrive even in challenging operating environments.

Meanwhile, investors looking for value and passive income may gravitate toward Target. Target remains a highly profitable business that can easily support its dividend payment with earnings. That said, Target has given investors every reason to mistrust its guidance.

I prefer Target because I believe in the brand, and the valuation is compelling. Since Walmart is priced as a growth stock, it’s only fair to compare it to other megacap growth stocks. I’d much rather buy a company like Microsoft than Walmart, which features a surprisingly similar P/E ratio of 34.1 and a comparable dividend yield of 0.8%. Microsoft will probably grow faster than Walmart over the long term, meaning it can support a higher valuation.

Walmart deserves to outperform Target this year, but investors should consider valuation before assuming Walmart is automatically the better buy.