Here's Why Walmart Continues to Crush the S&P 500 (and if the Dividend Stock Is a Buy Now)

Last year, Walmart (NYSE: WMT) soared 71.9%, making it one of the best performers in the S&P 500 and the second-best performing component in the Dow Jones Industrial Average (behind only Nvidia).

Walmart is following up on that impressive performance with a 6.7% year-to-date gain at the time of this writing, which is far better than the S&P 500's 2.1% decline.

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Here's why investors continue to gravitate toward the retail giant, and whether the dividend stock is a buy now.

Image source: Getty Images.

Winning with e-commerce

The simplest reason Walmart has been such a standout among its peer group in recent years is the company's masterful execution across in-store, e-commerce, and home delivery through Walmart+.

Inflation and economic uncertainty have pressured consumers to be more cost-conscious. Walmart has presented itself as a one-stop shop for value -- from everyday essentials and groceries to discretionary goods and services. The value brand characteristic is resonating with consumers. Walmart's global e-commerce sales grew by 22% in the recent quarter (first quarter fiscal 2026), far outpacing its total constant currency revenue growth of 4%.

In the U.S., Walmart grew comparable sales by 4.5%, or 450 basis points. However, 350 basis points of that growth were from e-commerce. These results show that Walmart isn't firing on all cylinders, but that it is doing what it can amid a challenging operating environment to diversify its business so it's less dependent on in-store foot traffic.

Major themes across retailers -- from value outlets like Dollar General or Dollar Tree to a big-box player like Target are declining foot traffic and cost pressures. E-commerce is a way to be less dependent on foot traffic. But because e-commerce takes out the in-store experience, price becomes paramount.

The emphasis on efficiency is why digitally native Amazon has taken market share from brick-and-mortar stores. For example, Target is overhauling its strategy to focus on in-store experiences because it doesn't have the operating leverage necessary to compete with Amazon on price cuts. But Walmart does.

Tapping into convenience and value

Walmart is in the sweet spot. Because it is already value-focused, it can leverage its vast network of stores and sophisticated supply chain to compete with Amazon on price. Walmart can also deliver groceries at ultra-low prices in a way that Amazon Fresh and Amazon-owned Whole Foods Market simply can't compete with.

On its latest earnings call, Walmart said that the number of U.S. deliveries in less than three hours grew by 91% in just one year, and that it will soon be able to service 95% of the U.S. population with delivery options of three hours or less.

In addition to its expanded network, Walmart is also managing costs to drive profitability in e-commerce. Walmart CFO John Rainey said the following on the latest earnings call:

As our business model evolves, contributions to profitability are increasingly influenced by a diverse set of drivers, including improved e-commerce economics and business mix. We achieved e-commerce profitability, both in the U.S. as well as for the global enterprise in Q1 for the first time, an important milestone for our company. In the U.S., e-commerce net delivery costs have declined as we've continued to densify our last-mile deliveries and as customers pay fees for faster delivery.

In sum, much of Walmart's recent rally is justified because the company has made measurable improvements to diversify its business and continues to grow e-commerce revenue and margins at a breakneck pace.

Walmart's growth rate and valuation are heading in opposite directions

On its latest earnings call, Walmart said that e-commerce, Walmart Marketplace (an online platform for third-party sellers), advertising, and membership (such as Sam's Club and Walmart+) give it room to absorb costs and should help it grow profits faster than sales -- implying margin expansion over time. However, these growth catalysts can still only move the broader business by so much.

It takes a lot to turn a big ship like Walmart. As a whole, Walmart just isn't growing quickly right now, even with the contribution from e-commerce. The midpoint of Walmart's forecast for full-year fiscal 2026 calls for a 4% increase in net sales, a 4.5% increase in adjusted operating income, and a less than 2% increase in adjusted earnings per share.

In fiscal 2025, Walmart grew revenue by 5.6% in constant currency and operating income by 9.7%. In fiscal 2024, it grew constant currency revenue by 5.5% and adjusted operating income by 10.2%.

Fiscal 2026 marks a noticeable slowdown from Walmart's growth rate in recent years. Yet the stock is priced to perfection, with a price-to-earnings (P/E) ratio of 41.2 and a forward P/E ratio of 36.9.

Walmart stock isn't a good value

Walmart is an excellent example of a well-run business that may not be the best stock to buy now.

Walmart has leaned into its value-focused roots to take market share from other outlets and grow e-commerce to help offset slower in-store growth. However, the valuation is overextended. And Walmart only yields 1% despite 52 consecutive years of increasing its dividend. The low yield is because Walmart's stock price has increased faster than its dividend, which has been a net positive for existing investors in terms of total return. But for new investors looking to buy the stock now, the yield simply isn't high enough to contribute to the investment thesis.

In sum, Walmart is priced like a growth stock even though the overall business isn't growing at growth stock levels. So, investors are better off buying a growth stock that can back up its valuation or a reliable value stock with a higher yield for passive income.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Daniel Foelber has positions in Nvidia. The Motley Fool has positions in and recommends Amazon, Nvidia, Target, and Walmart. The Motley Fool has a disclosure policy.