Target: The Best Dividend Aristocrat

09/12/2017 2:54 am EST

Focus: CONSUMER

Bob Ciura

Contributing Editor, Wyatt Investment Research

On the surface, they may be boring. But dividend aristocrats—which have increased their dividends for 25 years in a row or longer—have been the biggest creators of wealth in the last century, explains Bob Ciura, editor of Daily Profit.


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Discount retail giant Target (TGT) is one dividend aristocrat that has increased its dividend for more than 40 years in a row. This is a difficult time for retailers due to declining mall traffic, and the threat of e-commerce. As a result, Target shares have lost 25% of their value this year. But that decline makes now the perfect opportunity to buy Target. The stock is cheap, the company has a plan to return to growth, and the share price decline has lifted the dividend yield to a hefty 4.6%.

For retailers like Target, the most important financial metric is arguably comparable-store sales. This measures sales at stores open at least one year.

It is a critical performance metric, that shows whether a retail brand is strong enough to sustain growth after the honeymoon period of a new store opening comes to an end.

Many retailers are reporting declining comparable sales, which has prompted store closures across the industry.  In response, Target launched an aggressive turnaround strategy.

It is investing heavily to redevelop and modernize its stores, and is also opening dozens of smaller stores. These efforts are already starting to pay off: Target expects a 3%-4% sales lift per redeveloped store.

In addition, Target is opening small stores, under the CityTarget and TargetExpress banners. They will be opened in densely-populated areas, including large cities and college campuses. By 2019, Target expects to operate more than 100 small-format stores, a three-fold increase. Lastly, Target is building its own e-commerce footprint, to better compete with Internet retail competition. Target’s e-commerce sales rose more than 30% last quarter. These efforts are already starting to pay off. Target’s second-quarter earnings report handily beat analyst expectations. Comparable-store sales increased 1.3% for the quarter, nearly double what analysts were projecting. Earnings rose by 14% for the quarter.

Target is a rare stock, because it has appeal for both dividend growth investors, and those looking for higher current dividend yields. It's among the highest-yielding Dividend Aristocrats, with a current yield of 4.5%.

Plus, Target is attractively valued. The stock has a trailing P/E ratio of just 11. With the potential for a return to earnings growth in 2018, the stock appears to be undervalued. As a result, Target is an attractive turnaround stock, for value and dividend investors. Disclosure: Bob Ciura is personally long shares of Target.

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