Target Stock Analysis (TGT) & Target Dividend Review

Is The TGT Dividend Right On Target?

Let’s set our aim on a Target dividend stock analysis.

Because I like to have exposure to the retail sector in my dividend stock portfolio. And Target’s dividend profile has been attractive in the past.

So today, we will check in on the Target dividend payout, dividend growth, dividend safety, and more.  While we work through a Target stock analysis.

target stock dividend review

Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.

Target Stock & Dividend Analysis: Key Takeaways

1. Business fundamentals have supported a rising Target stock price.  Although the stock’s valuation appears high at recent levels.  And the increase in Target’s stock has caused its dividend yield to remain below 2%.

2. Target is a long-time Dividend Aristocrat having a rich history of rewarding shareholders with regular dividends.  However, dividend growth has slowed in recent years.  But most importantly, Target’s dividend appears to be very safe.

3. Target is a solid investment holding.  When held as part of a diversified dividend growth stock portfolio.

Next, let’s dig into the details. But first, a quick reminder for when you are done with this Target Corporation stock review.

Be sure to check out some of the other dividend investing resources on our site. To level up your dividend investing game.

For now, let’s get on with today’s Target financial analysis. After all, to manage your money effectively. You must make good investments.

Target Corporation Background

Target Corporation Logo

Target’s goal is to offer its customers high-quality, on-trend merchandise at discounted prices.  Also, they do this through clean, spacious, guest-friendly stores, and through digital channels.

Target’s customer profile looks like this:

  • The median age of customers is about 40 years old
  • Median household income of approximately $64,000
  • More than 40% have children at home
  • Nearly 60% have completed college

Source: Target Corporate Overview

Geographically, Target:

Finally, the company is not just another big box retail store chain. Target also owns:

  • Shipt delivery service
  • Grand Junction, a delivery logistics technology company
  • Roundel, a media company

Source: Target – About

Target Growth Strategy

Walmart and Amazon have scale and cost advantages in the retail segment. So, an effective business strategy is a must for Target to compete.

Management’s goal is to use Target stores as a competitive advantage. Specifically, using them as hubs to support an omnichannel retail approach to doing business.

Those channels being:

  • Grocery delivery
  • Drive-up order pick up
  • In-store order pick up
  • In-store shopping
  • Shopping from their app
  • Ship from store

To implement the strategy, store renovation investments have been made to improve the customer in-store experience. Plus investments in, supply chain logistics and technology to maximize efficiency and reduce costs.

Target’s strategy and smart investments are expected to deliver:

  • Low single-digit annual percentage revenue growth
  • High single-digit annual earnings growth

What Is The Target Stock Symbol?

Finally, Target stock trades on the New York Stock Exchange. It trades using the stock symbol TGT (NYSE: TGT).

When I trade. Or, should I say when I buy (and hopefully never sell) my dividend stocks. I use the Webull app. It’s fast and powerful. And has great research tools.

Best of all, trades are commission-free. You can learn more about Webull here.

Target dividend increase history

Next up? Let’s learn about this company’s dividend: what is it and how does it work?

Does Target Pay Dividends?

And the first question to answer is an easy one.

Yes. Target is a dividend stock.

Therefore, Target stock pays dividends. And, the company has a long, rich history of paying dividends to its shareholders.

The company has made dozens of consecutive quarterly dividend payments. And increased the Target dividend per share each year for decades.

Target Dividend Per Share

The Target dividend payout is $3.60 cents. This represents Target’s annual forward dividend per share of stock.

That means it is the most recent quarterly dividend paid. Multiplied by the 4 times the company pays dividends each year.

In contrast, Target’s trailing dividend per share is less. Trailing dividend per share is the sum of each of the last 4 quarters of actual dividends paid.

Why is the trailing dividend per share less than the forward dividend per share? Because the company typically increases its dividend once a year.

Next, let’s discuss Target’s dividend yield. I will have more on Target’s dividend increases in a moment.

What Is Target’s Dividend Yield?

The Target dividend yield is 1.5% at the recent stock price.

Dividend yields move in the opposite direction of a stock’s price. The good news, if you are a shareholder? Target stock has increased dramatically over the past year or so.

The bad news? The stock’s excellent performance has left the dividend yield relatively low.

I prefer to invest in dividend stocks with yields between 3% and 5%. But, I make exceptions. In this case, my initial investments in Target stock were made when the dividend yield was much higher than it is today.

Furthermore, I don’t sell a stock just because it has performed well. And left its dividend yield at a low level.

How Often Does Target Pay Dividends?

Target stock pays dividends every 3 months or 4 times per year. Each quarterly dividend payment is one-fourth of the annual dividend rate per share.

Quarterly dividend payments of a consistent amount are typical for a U.S.-based dividend-paying company. In contrast, many stocks located outside the U.S. pay dividends less frequently.

When Does Target Pay Dividends?

March, June, September, and December are the months in which dividends are paid. During each of these months, the Target dividend is paid on the 10th day.

The company has a very consistent dividend payment pattern. Even when the 10th of the month falls on a weekend, Target pays its shareholders that day.

Target Ex-Dividend Date

As a potential new shareholder, to receive the next stock dividend payout, you must complete your investment before the Target ex-dividend date.

Target’s ex-dividend date falls in the month PRIOR to when it pays dividends. And typically is during the 3rd week of that month.

The ex-dividend date is slightly different each quarter. So, it’s best to check Target’s dividend payment information on its investor relations website. You can get the exact Target dividend date for each payment there.

Target Dividend History

As I have mentioned, Target has a very long and proud history of paying dividends. I want to cover a couple of important points on this topic next.

When Did Target Start Paying Dividends?

First of all, Target’s initial public offering (IPO) of stock was on October 18, 1967.

Furthermore, the company started paying dividends to reward shareholders. And started doing so during its first year as a public company, 1967. Target has paid a dividend every quarter since then.

For How Many Years Has Target Increased Its Dividend?

Certainly, Target has an impressive achievement for dividend growth! Because the company has increased its dividend rate every year starting in 1972.

Target Is A Dividend Aristocrat

A Dividend Aristocrat is a company in the S&P 500 stock index. To qualify, the company must have paid and increased its base dividend every year for at least 25 years in a row.

Aristocrats are rare, indeed. There are only about 65 Dividend Aristocrats in existence. And Target stock qualifies for Dividend Aristocrat status.

Target Is Soon To Be A Dividend King

Target Dividend King status

Target is closing in on becoming a Dividend King. Dividend Kings are those special companies that have increased their dividends for at least 50 consecutive years.

As you might expect, there are even fewer Dividend Kings than Aristocrats. About 30 as of the date of this article. And it’s interesting to note that by definition, Dividend Kings are also considered Dividend Aristocrats.

Are you interested in companies that have increased their dividends for many years in a row? The table below shows a few others I cover on this site.

Table 1: Select Dividend Kings And Dividend Aristocrats Covered At Dividends Diversify

Diversified healthcare company Abbott Laboratories (ABT)

Consumer staples giant Procter & Gamble (PG)

Snack food and beverage company PepsiCo (PEP)

Payroll processing giant ADP (ADP)

Aerospace and defense contractor Raytheon Technologies (RTX)

So, we know Target has increased its dividends per share for many years in a row. But does Target have a strong dividend growth rate? Let’s check in on that dividend metric next.

Target Dividend Growth Rate

As shown in the next table, Target’s dividend growth rate has slowed in recent years. It appears the cash required to invest in stores and technology has had a negative impact on dividend growth.

Table 2: Target Compound Annual Dividend Growth Rate

1 Year3 Years5 Years7 Years
3.1%3.2%4.4%7.8%

Next Target Dividend Increase

Target usually announces dividend increases during June. So, I am always on the lookout for that announcement.

I expected the increase to break the recent trend. And to the upside! So, I was elated with a 32% dividend increase!

Target Dividend Policy

Based on their actions regarding the dividend, Target Corporation has implemented what is known as a constant dollar dividend policy.

Beyond that, Target does not have a specific and stated dividend policy that they communicate publicly. The closest they come is communicating general priorities for cash.

According to Target’s CFO, during their recent financial community meeting, priorities for cash are:

  • Invest in the business
  • Support the dividend
  • Return excess cash through share buybacks

I like to see the dividend mentioned when comes to capital deployment plans. But I would prefer to see a more clearly defined Target Corporation dividend policy statement.

That type of information helps me run my dividend portfolio. And make a plan for future dividend income the portfolio provides.

However, it’s not a big issue. Most companies choose to operate like Target. They emphasize the importance of the dividend. But stop short of communicating specific objectives for it.

Next, let’s move into some of the company’s business fundamentals. And that will lead us to another important topic about dividends.

That being the Target dividend payout ratio. It may give some clues on why dividend growth has slowed. But first, let’s start with revenue.

Target Revenue Trend

Virtually all of the company’s revenues are generated in the United States.  But you might want to note from the chart below that Target’s recent revenue history has been rather inconsistent.

Chart 1: Target Stock Analysis – 7 Year Revenue Trend

TGT 7-year revene trend

In addition to dealing with a highly competitive retail environment, threats have also come from internal issues including:

  • Bad press from a significant breach of customer data in 2013
  • Not so smart international investments in Canada that were discontinued in 2014
  • Loss of strategic and operational focus resulting in a CEO change in 2014

In contrast, the more recent revenue story looks a little brighter.  At a minimum, it aligns with management’s low single-digit percentage growth rate expectations.

Finally, the global health crisis has played in Target’s favor. Specifically:

These trends drove the nice increase in fiscal 2021 revenue. Versus 2020 reported financial results.

Target Dividend Payout Ratio Based On Earnings

Since incurring a large loss to write off the Canadian operation in 2015, earnings were range-bound at about $5.00 per share from 2016 through 2019.

But finally, Target’s strategy started delivering in 2020. Furthermore, similar to the revenue trend, earnings for the fiscal year 2021 were a nice break to the upside.

Chart 2: 7-Year Target Dividends & Earnings Per Share Trend

Target dividend payout ratio

We are seeing in the earnings trend what management has been telling investors:

  • 2017 – Investment year
  • 2018 – Transition year
  • 2019 – Positioned for profitable growth
  • 2020 – Profit growth resumes
  • 2021 – Changed consumer behaviors providing big earnings growth

Most importantly, higher profits have combined with modest dividend growth. Reducing the dividend payout ratio for Target to nearly 30%

A lower dividend payout ratio is generally better.  It shows the company has ample room to raise the dividend in the coming years.  Or, withstand an earnings drop without having to reduce their dividend.

Target Dividend Payout Ratio Based On Free Cash Flow

Our dividends are paid in cash. So, I like to cross-check a company’s dividend payments against its free cash flow. Let’s do that now.

Chart 3: 3-Year Target Dividends And Cash Flow

Target dividends versus cash flow

Cash is King. And Target is generating plenty of it. Based on free cash flow, the Target Corporation dividend payout ratio is less than 30% over the past 3 years.

The remaining cash has been allocated to retiring debt and repurchasing its shares in the stock market.

Debt reduction and share repurchases are both good practices. But, I would prefer that management prioritize faster dividend growth over share repurchases.

Target Dividend Growth Rate Projection

I mentioned earlier that it appeared Target’s significant level of business investment was negatively impacting dividend growth. However, the pace of store renovations is expected to decline in the coming years.

Reduced capital expenditures for stores and improved cash flow from operations should free up cash for higher dividend growth. Because of the lack of a clear-cut dividend policy statement, I don’t know for sure. But this is what I see happening:

  • High single-digit earnings growth
  • Maintenance of a dividend payout ratio at less than 50% of earnings

This brings me to a 6.5 – 7.5% forecast. For annual dividend growth from Target.

The company appears to have the capacity to grow the dividend at this rate. The bigger question is: will they do so?

Regardless, about 7% is what I will use for making a dividend income plan. Until I have reason to believe differently.

Target’s Financial Position

Moving forward with our Target stock and financial analysis. Let’s look at the company’s financial position.

Credit ratings and debt levels will be our checkpoints in this area. Overall, Target’s financial position appears to be on solid footing. Here’s the deal…

Target Credit Rating

Knowing a company’s credit rating is important.  And stocks that pay good dividends, like Target, usually have strong ratings. Furthermore, a corporation’s credit rating is similar to how your personal credit score works.

Speaking of your personal credit score. It is a good idea to check it regularly.

I use Credit Karma to check mine for free. You can too. Learn more about Credit Karma here.

But back to corporate credit ratings. Specifically, higher credit ratings mean lower risk to those who lend the company money.  Put another way, higher ratings mean lenders are more likely to get their loans paid back.

So, it never hurts to check out a company’s creditworthiness. Furthermore, good credit supports stock dividend safety.

Table 3: Credit Rating Evaluation Grid

Target has an investment grade, low credit risk rating.  The ratings are provided by two of the big rating agencies:

  • Moody’s – A2 rating
  • S&P – A rating

These ratings are solid. And, a good sign for Target and its ongoing status as a company and stock with financial stability.

Target Financial Position

Target’s debt to equity ratio sits at 1 to 1. This is a moderate level of debt and shows a very balanced capital structure. To finance the company’s operations.

How Safe Is Target’s Dividend?

I make a subjective judgment on dividend safety taking into account a number of the factors we have reviewed thus far:

  • Dividend payout ratios
  • Historical dividend track record
  • Free cash flow generation
  • Financial position
  • Business health
  • Growth strategy

In my estimation, I think the Target dividend is very safe from a reduction in the foreseeable future.

Let’s look at Target stock valuation next. Then, its time to wrap up.

Target Stock Valuation

I will judge the Target stock value using several different methods:

  • Dividend discount model
  • Morningstar fair value estimate
  • Price to earnings ratio
  • Simply Investing report

Target Dividend Discount Model

I use the Gordon Growth Model. It is a single-stage dividend discount model that considers several factors we have discussed thus far:

  • Current annual dividend payments
  • Projected dividend growth

Plus, my desired annual return on investment of 9%.

Under these assumptions, the dividend discount model calculates the fair value of Target stock at $193 per share.

Morningstar Fair Value Estimate Of Target Stock

Next, the investment analysis firm Morningstar believes Target stock is fairly valued at $138 per share.

Source: Morningstar

Target Stock Price To Earnings Ratio

The Target stock price to earnings ratio sits the mid-20 times their fiscal 2021 earnings.

This is a premium valuation. But much depends on how consumer behavior changes. As the U.S. economy fully opens.

Simply Investing Report Valuation Of Target Stock

You can read more about Simply Investing. And how the publication values dividend stocks in my review article.

Simply Investing uses some pretty tough and disciplined criteria. As of this writing, Simply Investing views Target stock as overvalued.

Is Target Stock A Good Buy?

The valuation metrics show Target stock to be overvalued.

When you couple the stock’s valuation with a low dividend yield. And modest dividend growth of recent years. The stock does not look overly attractive to me at this time. But, I intend to hold my shares for the long term.

I could change my mind and consider adding more shares. But only if sustainable future dividend growth moved up to the 8-9% range.

That concludes the Target stock report and dividend review. Let’s close with a few concluding thoughts. And answers to some important questions.

Target Dividend Stock Analysis Conclusions

From a business standpoint, Target must continue to meet the challenges of stiff competition for consumer dollars.

Have they rediscovered their niche consumers in the US?  Can they compete with the likes of Amazon and Walmart? Will revenues and profits continue to rise as a result of the global health crisis?

As we move forward, the answers to these questions will tell us more about if Target’s stock should be valued at higher levels than in the past.

Is Target A Good Dividend Stock?

First of all, Target is a high-quality dividend stock. It’s hard to deny this conclusion about a company that has paid regular quarterly dividends since 1967. And has increased its dividend payout every year since 1972.

Furthermore, Target is a Dividend Aristocrat. Also, the company will soon become a newly minted Dividend King.

Combine these favorable attributes with a high degree of dividend safety. And it’s easy for me to say that Target is 1 of many good dividend stocks available to investors.

My Path Forward With Target Stock

Target stock holds a mid-size position in my dividend growth stock portfolio.

As of the time of this article, the combination of Target’s:

  • Low dividend yield
  • An overvalued stock price

leaves me with little interest in buying more shares.

I intend to hold my shares. And will watch closely, desiring higher dividend growth from Target in the near future.

It appears the company has the capacity to deliver higher dividend growth. But, will they continue to do so is the big question on my mind.

More Reading On Dividend Stocks & Dividend Investing

My Favorite Dividend Investing Resources

The dividend investing resources I mentioned in this article are summarized here for your convenience.

I use all of them. To make the most of my money and investments.

Investing in retail for passive income from dividends #passiveincome

Disclosure & Disclaimer: I am not a licensed investment adviser, financial adviser, or tax professional. And I am not providing you with individual investment advice, financial guidance, or tax counsel. Furthermore, this website’s only purpose is information & entertainment. And we are not liable for any losses suffered by any party because of information published on this blog.

I own Target stock and collect the Target dividend.