Walmart Got Kicked Out of the $1 Trillion Club. Is the Dividend King Stock a No-Brainer Buy Before the End of May?

Walmart's (NASDAQ: WMT) market value closed at $967.2 billion on May 21 after the world's largest retailer sold off following its fiscal 2027's first-quarter earnings report.

Walmart is now the 10th-most-valuable U.S. company, behind $1 trillion club members Nvidia, Alphabet, Apple, Microsoft, Amazon, Broadcom, Tesla, Meta Platforms, and Berkshire Hathaway, and just ahead of Eli Lilly.

Here's why Walmart is selling off, and whether the dividend stock is a buy now.

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Walmart continues to win with consumers

Walmart's U.S. comparable-store sales grew 4.1%, and operating income rose 5% in the latest quarter. But operating income would have increased by 7.5% if it weren't for higher fuel costs in distribution and fulfillment.

Despite these headwinds, Walmart still delivered very impressive results as it continues to invest in artificial intelligence (AI), automation, and e-commerce, and boost subscription revenue from Walmart+ and Sam's Club memberships.

The giant retailer was a relatively early adopter of AI, recognizing how it can lead to operational and efficiency improvements. Walmart has taken its AI capability a step further by leveraging AI to personalize shopping experiences. Sparky, Walmart's AI shopping agent, saw weekly active users double quarter over quarter. Sparky users are ordering 35% more than regular customers.

Walmart is feeling the effects of higher fuel prices

Walmart's combination of efficiency improvements and value focus is a winning formula in today's operating environment, where cost-conscious consumers are gravitating toward savings opportunities. Walmart has held up far better than other retailers and consumer staples companies. But consumers are spread thin. Walmart CFO, John Rainey, said this on the May 21 earnings call:

We see with our customers that the high income customer is spending with confidence into many categories, while the lower income consumer is more budget conscious and perhaps navigating financial distress. And I'll give you an example, like we have a large fuel business, and we see that in the most recent period, the number of gallons that customers fill up with when they come to our fuel stations fell below 10 for the first time since 2022. That's an indication of stress.

If fuel prices and inflation pressures persist, Walmart could enter a period of slower growth. Despite being a relatively low growth consumer staples stock, Walmart trades at a staggering 41.5 times forward earnings and 44.4 times trailing earnings. Walmart's premium valuation stems from its reliability, as the business can perform well and take market share even during challenging periods.

Risk-averse investors focused on capital preservation may be willing to pay a premium price for Walmart for its stability. And what's more, Walmart's dividend is incredibly reliable, as it has increased its payout for 53 consecutive years -- making it one of the newer Dividend Kings, which are companies that have increased their payouts for at least 50 consecutive years.

But because Walmart's stock price has outpaced its dividend growth rate, it yields just 0.8%, which is even lower than the S&P 500's 1.1%.

Walmart is overpriced

Walmart's size should give it a significant advantage as it continues to integrate AI into its operations and customer experience. But the stock is priced for perfection.

Investors looking for safe stocks to boost their passive income stream would be better off with higher-yielding Dividend Kings like Procter & Gamble or Coca-Cola -- which are both far better values than Walmart.

Daniel Foelber has positions in Nvidia and Procter & Gamble. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Broadcom, Eli Lilly, Meta Platforms, Microsoft, Nvidia, Tesla, and Walmart. The Motley Fool has a disclosure policy.