This Dow Jones Stock Is a No-Brainer for Dividend Growth

The Dow Jones Industrial Average consists of 30 well-recognized, large-cap stocks. These established companies typically have been around for a long time, but that doesn’t mean they’ll stay around forever. Even the once-mighty General Electric (NYSE: GE), part of the index since 1907, hit troubled times and was removed in 2018. That same year, the board of directors slashed the company’s quarterly dividend to a nominal penny a share.

Fortunately, you can do some homework and buy a reliable dividend payer in the Dow Jones Industrial Average that will avoid this ignominious fate. Those looking for a stock with reliably higher dividends needn’t look further than Walmart (WMT -1.57%).

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Thriving during troubled times

When the going gets tough, Walmart gets going. Its intense focus on low operating costs to keep prices down for patrons always has appeal, particularly during difficult economic times. During the first year of the pandemic, people flocked to shop at Walmart. Its fiscal 2021 year, ended Jan. 31, 2021, bears this out. In that period, U.S. same-store sales (also called comps) rose by 8.6%.

Many economists predict the U.S. will enter a recession this year. Even if that doesn’t come to fruition, it’s comforting to know that when economic troubles come, Walmart will excel by attracting customers through its value proposition.

Not standing pat

Walmart opened its first discount store in 1962, but management hasn’t rested on its laurels. As others encroach on its territory, particularly online companies like Amazon, it has invested a great deal in technology.

The company launched its e-commerce site in 2000, and it has continued to move forward. This now includes omnichannel capabilities that offer same-day delivery for many items. The retailer launched Walmart+, its subscription service, which includes delivery and discounted gas among the benefits. And Walmart Business+ aims to attract the growing market of small and medium-size businesses.

It continues to look toward the future, including directing capital expenditures toward such items as the supply chain, store remodeling, and ways to improve the omnichannel experience.

Lots of cash flow

Fortunately, Walmart has the resources to invest in opportunities and reward shareholders with higher dividends. For the first nine months of fiscal 2023, which ended on Oct. 31, 2022, free cash flow (FCF) totaled $3.6 billion. This comes after management spent $12.1 billion on capital expenditures to cover the aforementioned items that allow Walmart to stay ahead of the competition.

Looking at the last 12 months, FCF was $7 billion, which covered the $6.1 billion of dividends. And dividends remain a priority. The board of directors has increased payments since first declaring a dividend in 1974.

That puts Walmart on the cusp of becoming a Dividend King, an illustrious group of companies that have increased payments annually for at least 50 straight years.

Although Walmart’s simple business, executed to perfection, isn’t terribly exciting, its profit generation is anything but boring. And it’s ensuring that it doesn’t become a stodgy old company in danger of having its best days behind it. That adds up to make Walmart’s stock enticing to those attracted by ever-higher dividends.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends and Walmart. The Motley Fool has a disclosure policy.