When recessions strike, the share prices of just about every company fall. This is because stocks are forward-looking and tend to overreact to both the upside and the downside. And when recessions do strike, investors rapidly discount negative earnings growth in the form of lower share prices. For some stocks, however — like Walmart (NYSE:WMT) — recessions actually strengthen their business model. Walmart stock stands strong because the company has carefully built its brand.

What do I mean? Well, the Walmart brand has stood on top of the idea of value for consumers. It has been that way since the company opened its doors and that message still resonates in a big way today.

Because of this, I believe Walmart is one of the best bear market stocks that can withstand a recession.

Why Walmart Stock Is a Recession-Proof Pick

Walmart stock is recession-proof for several reasons.

First, as I said before, WMT has always focused on value for the consumer. It’s a low-price leader, a strategy that resonates especially well during recessions.

Second, the company has invested billions of dollars into its e-commerce platform in recent years, prioritizing convenience and further enhancing its value proposition. More specifically, WMT bought Jet.com back in 2016. Although the service itself has since been shut down, the company used Jet’s logistical knowledge to setup its own e-commerce business. Now, WMT sees massive e-commerce sales growth, including a staggering 79% gain in the U.S. over the most recent quarter.

And third, Walmart has managed to situate itself with the right merchandising assortment — from groceries to big ticket electronics to clothing. That makes it a one-stop shop for just about anything a consumer could need.

The end result of all of these factors is a history of earnings resiliency and dividend growth during all economic periods. That’s quite rare in the stock market. When other stocks are suffering from weak economic conditions, WMT generally thrives.

For instance, during the Great Recession — the worst downturn the U.S. had seen since the 1930s — Walmart managed to grow its earnings each year. In fact, revenue and earnings per share (EPS) growth was quite strong, even in the recession’s worst period from 2007 to 2009.

This level of performance is extremely attractive for a dividend investor. That’s because recession-safe earnings mean that a company can continue to raise its payout in just about any environment. And that’s exactly what Walmart has done.

The WMT Dividend Is Strong

Walmart is, in fact, one of only 65 Dividend Aristocrats, a select group of S&P 500 stocks with at least 25 consecutive years of dividend increases. The company itself has increased its dividend for over 40 years. Of course, that kind of longevity is invaluable to income investors. And its not quitting anytime soon — Walmart’s model continues to generate enough cash so that the company can reinvest in making its value proposition better and better every year.

Specifically, WMT’s one-stop convenience as well as its value-focused ethos has built an ecosystem that builds upon itself, generating more and more traffic. For instance, groceries were a huge success for Walmart in driving traffic. They drove higher demand for high-margin categories like clothing, which you find closer to the center of the store. Walmart recognized long ago that driving traffic through consumables would increase demand for its other categories.

This ecosystem works extremely well in recessions, given that consumers demonstrate consistent demand for consumables irrespective of the economy. It’s also had a diversifying effect. When conditions are tough, Walmart sells everyday needs. And when conditions are better, it sells discretionary items for consumers with spending money. That’s what makes the Walmart stock dividend such a sure thing — whether in a recession or a pandemic.

However, Walmart is trading in excess of 26 times earnings today, which is well above my estimate of fair value at 22 times earnings. The company’s outstanding performance during the most recent downturn has seen investors flock to its stock, driving valuation higher. I see a modest headwind in the coming years from a moderating valuation — Walmart can’t sustain the current price-earnings multiple.

Final Thoughts

From a dividend investor’s perspective, I continue to like Walmart stock for its nearly five decades’ worth of consecutive dividend increases. The current yield is just 1.48%. However, going back five years, the yield on cost (YOC) is closer to 3.5%. That’s thanks to all of the dividend increases. So, over time WMT’s YOC improves as the payout is raised — something long-term holders should keep in mind.

In addition, despite so many years of increases, Walmart’s dividend is still ultra-safe. The payout for this year is projected to be just 38.7%, meaning the company has plenty of room for more increases on its current level of earnings. This combination of steady dividend growth and a low payout ratio is ideal for dividend investors.

So, while I see Walmart as overvalued today, it is one of the best stocks on the entire market to own during a recession. Walmart outperformed the S&P 500 enormously during the Great Recession and again during Covid-19. With undefeated dividend increases and an outstanding track record, Walmart stock is one of the best picks for a bear market.

On the date of publication, Bob Ciura did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.