08-12-2013, 07:57 PM
So I've been meaning to look a little more closely into Target (TGT) as a dividend growth stock for a while now. I've got two Target stores within a few miles of where I live, and both of them have been renovated extensively in the last year. The stores feel fresh and modern, have been bustling with activity, and even though I'm unlikely to ever buy groceries there, it seems like a required move these days. All this in contrast to my trips into Wal-Mart, where the stores are a dreary mess.
The recent posts on here lately praising Target as a DG stock (thanks Horace!) finally inspired me to run the numbers. And they look pretty darned solid to me.
I didn't realize that Target was the dividend champion that it is. I knew it had a good streak going, but I did not realize that it was up to 46 consecutive years of increasing dividend payouts. That puts TGT in some pretty lofty company.
The current yield is a little weak for my taste, at a tad under 2.5 percent, but the dividend growth has been gangbusters, with a five year average dividend growth rate over 20 percent. The 2013 raise kept up that pace, coming in just a hair under 20 percent. Moreover, even with the fast dividend growth rate, Target's payout ratio is still only around 35 percent. So there is plenty of room for the dividend to continue to grow. The P/E ratio is reasonable at slightly over 16.
Earnings are perhaps the weakest link in the chain, here. Earnings have risen slowly, though steadily, out of the 2008 - 2009 crisis, but 2013 earnings are projected to come in lower than 2012. This is generally not a good sign, but I am willing to give management the benefit of the doubt. I think the store refreshes are a big positive, I've read that they'll be expanding in Canada, and I am personally bullish on the economy overall. And again, the low payout ratio gives them plenty of breathing room. So while I would keep a careful eye on earnings, this would not stop me from buying the stock.
Interestingly, although the current yield is lower than I'd like, it does appear to be on the high end of the range for Target, at least looking at the last five years. See: Target historical dividend yield. This can often signal a very good entry point, if other fundamentals are sound, which they appear to be.
I do not own any shares of Target myself at the moment, but based on this recent review it has jumped to near the top of my watch / potential buy list.
What do you think?
The recent posts on here lately praising Target as a DG stock (thanks Horace!) finally inspired me to run the numbers. And they look pretty darned solid to me.
I didn't realize that Target was the dividend champion that it is. I knew it had a good streak going, but I did not realize that it was up to 46 consecutive years of increasing dividend payouts. That puts TGT in some pretty lofty company.
The current yield is a little weak for my taste, at a tad under 2.5 percent, but the dividend growth has been gangbusters, with a five year average dividend growth rate over 20 percent. The 2013 raise kept up that pace, coming in just a hair under 20 percent. Moreover, even with the fast dividend growth rate, Target's payout ratio is still only around 35 percent. So there is plenty of room for the dividend to continue to grow. The P/E ratio is reasonable at slightly over 16.
Earnings are perhaps the weakest link in the chain, here. Earnings have risen slowly, though steadily, out of the 2008 - 2009 crisis, but 2013 earnings are projected to come in lower than 2012. This is generally not a good sign, but I am willing to give management the benefit of the doubt. I think the store refreshes are a big positive, I've read that they'll be expanding in Canada, and I am personally bullish on the economy overall. And again, the low payout ratio gives them plenty of breathing room. So while I would keep a careful eye on earnings, this would not stop me from buying the stock.
Interestingly, although the current yield is lower than I'd like, it does appear to be on the high end of the range for Target, at least looking at the last five years. See: Target historical dividend yield. This can often signal a very good entry point, if other fundamentals are sound, which they appear to be.
I do not own any shares of Target myself at the moment, but based on this recent review it has jumped to near the top of my watch / potential buy list.
What do you think?