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Target (TGT) Looks Solid
08-12-2013, 07:57 PM
Post: #1
Target (TGT) Looks Solid
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?
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08-13-2013, 12:23 PM
Post: #2
RE: Target (TGT) Looks Solid
Great write-up, Kerim. Thanks. When I see dividend growth like that I am always skeptical that it can continue for much longer. Does anyone know the 10 year dividend growth rate?

But even if they only grow the dividend by half as much each year (say, 10%), the returns should be solid. But I think what convinces me is that in addition to the solid fundamentals, Target appears to be laying a good foundation for future prosperity as well. I'm going to grab a few shares.

Tom
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08-13-2013, 01:27 PM (This post was last modified: 08-13-2013 01:28 PM by EricL.)
Post: #3
RE: Target (TGT) Looks Solid
(08-13-2013 12:23 PM)TomK Wrote:  Great write-up, Kerim. Thanks. When I see dividend growth like that I am always skeptical that it can continue for much longer. Does anyone know the 10 year dividend growth rate?

But even if they only grow the dividend by half as much each year (say, 10%), the returns should be solid. But I think what convinces me is that in addition to the solid fundamentals, Target appears to be laying a good foundation for future prosperity as well. I'm going to grab a few shares.

Tom

10 year dividend CAGR for Target is 18.6%.
http://www.tessellation.com/dividends/TGT.html
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08-13-2013, 01:46 PM (This post was last modified: 08-13-2013 01:52 PM by TomK.)
Post: #4
RE: Target (TGT) Looks Solid
Thanks for the link, Eric. Pretty impressive numbers indeed. I did a little math and they've been growing the dividend by an average of 17% per year since 2000. Even in the 2008-2009 crisis they raised by 10%. Maybe I should have bought even more...

Edited to add: I've never been able to decide if I think CAGR is a useful measure. Maybe it is no worse than a straight average, and in neither case can you ignore the bumpiness and trend of the numbers, but still wary of it for some reason. Maybe I'm just old fashioned. In any case, Target's dividend growth numbers are not on the wane, that's for sure.
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08-15-2013, 01:44 PM
Post: #5
RE: Target (TGT) Looks Solid
I bought some TGT yesterday, just a day early, LOL.

I tend to pay attention to the last dividend increase, figuring the next will be similar.
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08-15-2013, 04:39 PM
Post: #6
RE: Target (TGT) Looks Solid
Yep, I wish I had taken just a little more time to mull the decision over, too. Hate buying things the day before they go on sale! Oh well, can always buy a few more shares to average down.
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08-21-2013, 02:40 PM
Post: #7
RE: Target (TGT) Looks Solid
Kerim, we both bought Target on the same day last week, and it has fallen like a rock since then, more than 7 percent by my count from the moment I bought. I hope very much that our agreement about the merits of a stock is not a bearish indicator! Confused

But seriously, the question now is whether to double down. The earnings report and guidance were not stellar, but I feel like today's price drop may be a bit of an over-reaction. I'm inclined to buy some more.

What do you all think?
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08-21-2013, 03:00 PM
Post: #8
RE: Target (TGT) Looks Solid
(08-21-2013 02:40 PM)TomK Wrote:  Kerim, we both bought Target on the same day last week, and it has fallen like a rock since then, more than 7 percent by my count from the moment I bought. I hope very much that our agreement about the merits of a stock is not a bearish indicator! Confused

But seriously, the question now is whether to double down. The earnings report and guidance were not stellar, but I feel like today's price drop may be a bit of an over-reaction. I'm inclined to buy some more.

What do you all think?

My thoughts...

If you are an long term investor TGT is more attractive today than it was yesterday.

If you are a short term trader TGT is less attractive today than it was yesterday.

...

I am a long term investor and will have new money available for a new buy in the next couple of days. Today's drop has moved it upwards on my list but I have been leaning towards adding to either my PM or O positions with this purchase.

I'm beginning to wonder if retail sees a continued slowdown in the second half of the year as oil and gas continues to go up. I'm going for safety in higher yields with this purchase and think TGT could be more attractive in a couple of months when my next buy is ready to be made.
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08-21-2013, 03:23 PM
Post: #9
RE: Target (TGT) Looks Solid
Great point, Eric. When the market opens tomorrow, I'm not sure that TGT is my highest-conviction buy. I shouldn't feel obligated to average down because I have a good opportunity to do so.
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08-21-2013, 03:30 PM
Post: #10
RE: Target (TGT) Looks Solid
I guess I failed to mention in my response that I am long TGT as well. I plan on to add to my position at some time in the future, but I don't think it will be with my next purchase.
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