06-11-2014, 05:56 PM
Ok, that caught me by surprise! Given all of Target's problems of late, and in light of the fact that earnings are not moving strongly upwards, I figured that there was so way we'd see another big increase from TGT this year.
But wow -- 43 cents a quarter to 52 cents a quarter is better than a 20 percent raise year over year.
Unless earnings really pick up, these continued raises are coming directly at the expense of the payout ratio. It was around 30 percent in 2012, jumping to around 50 percent in 2013. If 2014 earnings are flat with 2013, this will put the payout ratio solidly above 60 percent. Clearly, that growth cannot continue without earnings growth.
It is hard not to feel like this move may be a tad imprudent, unless they know some things that we don't about future earnings trajectory (which is of course the case...). But they may have felt a lot of pressure to reward shareholders for all of the recent difficulties and share price decline. This will definitely ease the pain of waiting for them to get the ship turned around again.
I've been pretty vocal lately about my concerns about the long-term future of bricks and mortar retail, but I've also said that otherwise, I'd be a buyer of TGT at these prices. This has all the looks and feel of a protracted doldrum that allows accumulation at nice prices and initial yields, prior to the eventual recovery of earnings and share price. That is not to say that TGT is undervalued at the moment, but with a yield of 3.6 percent, I'm going to find it hard not to add some shares to my small position. I'll be happy to lower my average price per share and wait for the turnaround. However, I'll be monitoring a lot more closely than many of the other names in my portfolio.
But wow -- 43 cents a quarter to 52 cents a quarter is better than a 20 percent raise year over year.
Unless earnings really pick up, these continued raises are coming directly at the expense of the payout ratio. It was around 30 percent in 2012, jumping to around 50 percent in 2013. If 2014 earnings are flat with 2013, this will put the payout ratio solidly above 60 percent. Clearly, that growth cannot continue without earnings growth.
It is hard not to feel like this move may be a tad imprudent, unless they know some things that we don't about future earnings trajectory (which is of course the case...). But they may have felt a lot of pressure to reward shareholders for all of the recent difficulties and share price decline. This will definitely ease the pain of waiting for them to get the ship turned around again.
I've been pretty vocal lately about my concerns about the long-term future of bricks and mortar retail, but I've also said that otherwise, I'd be a buyer of TGT at these prices. This has all the looks and feel of a protracted doldrum that allows accumulation at nice prices and initial yields, prior to the eventual recovery of earnings and share price. That is not to say that TGT is undervalued at the moment, but with a yield of 3.6 percent, I'm going to find it hard not to add some shares to my small position. I'll be happy to lower my average price per share and wait for the turnaround. However, I'll be monitoring a lot more closely than many of the other names in my portfolio.