Is Target a Dividend King?

Popular retail giant Target Corporation (NYSE:TGT) has been in a slump, down 2.5% over the past year alone. Worse still, over the past nine months, the stock has declined close to 20%, and over the past six months, it has tumbled by more than 4%.

Yet, the company is a well-established cash giant with a well-registered history of delivering value and stability to investors. Target has been paying dividends for years and stayed ahead of the competitive curve for a long time. So, is it finally time to buy this retail giant amidst its share price slump?

Target Is Sledding Uphill Now

The market is going through a transition from a tight monetary policy landscape to a somewhat of a looser one. The Federal Reserve has been cutting interest rates, which have been sitting at a high range for a long time after the central bank was forced to raise rates after inflation reached multi-decade highs.

At last watch, the Fed delivered a 25-basis-point cut in December of 2024 to a target range of 4.25%-4.5%. This interest rate level was not seen since 2022. Yet, further cuts this year might not be baked in because the economy has proven quite resilient, and inflation is stickier than expected.

The market is giving mixed signals at the moment. In December, The Conference Board’s Consumer Confidence Index declined. What’s even more astounding is the fact that the Expectations Index also tumbled as business conditions weakened, and indeed these were cited as the primary catalyst for the drop.

What was diametrically opposed to this downtrend was how holiday sales grew strongly from the start of November through Christmas Eve, going up by 3.8%, which was higher than the 3.1% increase from a year earlier. Last year, retailers were even more impatient to buy something for the holidays. Sales did see experience a bumpier path in certain industries, such as grocery and clothing.

This is the market backdrop against which Target must forge a path back to higher elevations. It’s in a transitional market phase and so while consumers appears to be cautiously optimistic, the sledding remains uphill to get shareholders back on the right path having missed out on 20% plus gains last year had they simply held the S&P 500.

Is Target a Dividend King?

Target has been paying dividends since 1967, resulting in a history that has extended to over 50 years making it a rare Dividend King.

The retailer is a longstanding dividend payer, which makes it a fairly stable bet over the long haul. The Board of Directors last declared a quarterly dividend of $1.12 per common share in September of 2024 and subsequently paid it in December of the same year. This was Target Corp’s 229th consecutive dividend.

This quarterly dividend cumulates to an annual dividend of $4.48 per share annually and yields 3.23% at its current price level.

The company has a not-too-high, not-too-low payout ratio of 46.87%, which is highly sustainable, and quite impressive given its half-century streak too.

In addition, the dividend payouts have grown at a compound annual growth rate of 12% and 11% over the past three and five years, respectively.

Such longstanding dividend prowess gives investors an idea of just how strong Target’s balance sheet is and how efficient it is at generating cash. But, as always, a good dividend depends on the strength of the financials, and therein lies a clue as to why TGT share price has been struggling.

How Has Target Corporation Been Performing Recently?

Target reported its third quarterly results for fiscal 2024, announcing sales of $25.23 billion, which were marginally higher than what was recorded in the year-ago period, while revenue also climbed by 1% year-over-year to $25.67 billion.

The company’s gains are mainly coming from its digital channels. Comparable sales increased marginally in Q3, as the impact of the 1.9% decline in same store sales was offset by a 10.8% rise in comp digital sales.

Profitability was dampened by higher digital fulfillment and supply chain costs, which were ignited by higher inventory levels, increased digital sales volume, and the emergence of new supply chain facilities online. As a result of these, operating income margin dropped from 5.2% to 4.6% year-over-year, while gross margin dropped from 27.4% to 27.2%.

On the other hand, Target did pay a whopping $516 million as dividends during the quarter, 1.8% higher than what was paid in the prior year’s period. The company also repurchased $354 million worth of its shares during Q3, and that buyback is the type of confidence likely to attract value investors soon.

These results were not enough to spark a significant share price bounce but if Target’s digital sales channels continue their growth rate expect a resurgence in the medium term when the market really takes notice.

The bottom line is there is lots to like about Target, not least the record of 56 years of consecutive dividend growth, and an elevated dividend yield. Plus, with the price sitting at 16.21x forward non-GAAP earnings, the stock has the potential to be a strong asset to any portfolio over the long-term.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.