Walmart Has Gone Down While Target Is Up 62%. But Only 1 of These Dividend Kings Is a Buy in August.

Walmart (NASDAQ: WMT) and Target (NYSE: TGT) have different business philosophies but battle for customers. The former has a low-cost, ultra-low-price business, while the latter offers low prices on certain items (such as groceries) while offering differentiated merchandise.

Both have been very successful, but their paths diverged a few years ago. Walmart kept attracting customers, while Target lost ground. That was reflected in their stock price performances.

However, their stock performances have flipped this year. Through Aug. 20, Walmart's shares have lost 6.8%, and Target's stock price gained an eye-popping 61.9%.

With companies recently reporting quarterly results, one stands out as a buying opportunity for long-term investors.

Image source: Getty Images.

Walmart

You'd be hard-pressed to find a retailer that can undercut Walmart on prices. In existence for more than six decades, it has perfected the art of squeezing costs and passing those savings on to customers. Management has also been investing in technology for years to create an omnichannel retailer that is convenient for shoppers.

Low prices always attract customers, but that's particularly true during these challenging times when people's wallets have been squeezed by inflation. And that's reflected in Walmart's continued sales growth, albeit at a slower rate recently.

Walmart U.S, the company's largest segment, saw fiscal second-quarter same-store sales (comps), excluding gasoline, increase 2.6%. Notably, people were still drawn to Walmart, with higher traffic contributing 1.5 percentage points. Increased spending added 1.1 percentage points.

Overall, Walmart's revenue grew 5.1%, excluding foreign-currency changes, and operating income increased 17.4%. The results were for the quarter ended on July 31.

The company uses some of this profit to pay dividends. In fact, Walmart has raised payments for 53 straight years, making it a Dividend King. These are companies that have increased dividends annually for at least 50 straight years.

However, at the $0.99 annualized rate, the stock's 1% dividend yield trails the S&P 500 index's 1.1%.

Target

Target has admitted to losing its way. Once known for its fashionable and differentiated merchandise, the brand's goods no longer strike a chord with consumers.

Michael Fiddelke, who took over as CEO earlier this year, made changes to win back customers. This included a return to trendier merchandise, improvements to store appearance, and technology investments to enhance the shopping experience.

The steps appear to be working, with Target driving more traffic and reporting positive comps for two straight quarters. Fiscal second-quarter comps increased 3.8%, with the bulk, 3.6 percentage points, coming from higher traffic. The period ended on Aug. 1.

Target has also built an impressive dividend track record. A couple of months ago, the company announced a 2% increase to its quarterly dividend, to $1.16 per share. Target is also a Dividend King, having increased payouts for 55 consecutive years.

The stock has a yield of 2.9%, nearly triple that of the S&P 500.

The decision

While Target's stock price has risen sharply, its price-to-earnings ratio is 16. That's about half the S&P 500's P/E multiple of 29. Meanwhile, Walmart has a P/E ratio of 38.

Hence, with its better valuation, strong sales momentum, and higher dividend yield, Target is my choice right now.

Lawrence Rothman, CFA has positions in Target. The Motley Fool has positions in and recommends Target and Walmart. The Motley Fool has a disclosure policy.