3 Dividend Stocks That Are Too Successful for Their Own Good

The S&P 500 now yields just 1.4% as companies that don’t pay dividends or have low yields make up a larger share of the broader market. Investors looking for passive income may be turning to stocks with higher yields and track records of dividend raises.

Walmart (NYSE: WMT), WM (NYSE: WM) (formerly known as Waste Management), and Sherwin-Williams (NYSE: SHW) consistently buy back shares and raise their dividends. But they now yield less than the S&P 500.

Here’s why these three dividend stocks are too successful for their own good, and why great companies can become poor sources of income over time.

Image source: Getty Images.

Walmart is in growth mode

Walmart is hovering around an all-time high. After a successful 3-for-1 stock split, Walmart raised its dividend by 9%, marking the largest raise in over a decade and the 51st consecutive dividend raise. Still, Walmart only pays an $0.83-per-share quarterly dividend, which is a mere 1.3% yield.

Prior to this, Walmart had made close to bare minimum annual raises. But that’s mostly because it has been reinvesting in its stores and improving the underlying business. The strategy has mostly worked.

Walmart’s revenue is up over 25% in the last five years — a fairly big move for a company its size. Its operating margin is back over 4%, which makes a big difference for its profitability.

However, Walmart’s trailing-12-month net income is surprisingly lower today than it was a decade ago because Walmart has increased its capital expenditures (capex). In fact, capex has nearly doubled in just three years!

If Walmart wasn’t spending so much on capex, it would be generating record profits. But long-term investors care more about where a company’s profits are years from now than what they are today.

WMT Capital Expenditures (TTM) Chart

Aside from store expansions, Walmart has invested heavily in store pickup and delivery through its Walmart+ program. In fiscal 2024, Walmart passed $100 billion in global e-commerce sales for the first time, meaning e-commerce made up over 15% of total sales.

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