Target Corporation (TGT - Analyst Report), the operator of general merchandise and food discount stores, revealed its plan to utilize its free cash to boost stakeholders’ return by announcing a dividend hike.
The Minneapolis, Minn-based company, Target, raised its annual dividend by 19.4% to $1.72 (or 43 cents quarterly) from $1.44 per share (or 36 cents quarterly). The company announced that the increased dividend will be paid on Sep 10 to stockholders of record on Aug 21. This marks the 184th dividend payment for the company ever since it went public in Oct 1967.
However, the news did not provide any impetus to the stock, as Target’s share price fell 0.8% or 57 cents to close at $69.43 on Wednesday. The dividend yield based on the new payout and the last closing market price is 2.5%.
Target, an S&P 500 company, last hiked its annual dividend to $1.44 from $1.20 per share in Jun 2012, reflecting an increase of 20%.
Dividend hikes not only enhance shareholder’s return but raise the market value of the stock. Through this strategy, the companies bolster investor confidence in the stock, thereby persuading them to either buy or hold the scrip instead of selling them. Looking ahead, the company remains confident of its growth potential, suggesting enhanced value for shareholders.
Although Target’s dividend hike is a regular feature and came exactly after a year, it may be considered to be part of a strategy to provide cushion to the stock. This follows the Zacks Rank #4 (Sell) company’s disappointing first-quarter fiscal 2013 results that prompted management to take a conservative stance on its future earnings.
The quarterly earnings, including the U.S. and Canadian operations, came in at 81 cents a share that dipped from $1.03 reported in the prior-year quarter.
Target’s adjusted earnings of $1.05 per share also dropped from $1.11 delivered in the year-ago quarter. This relates to results from the U.S. operations only. However, it managed to exceed the Zacks Consensus Estimate of 85 cents.
Following soft first-quarter results, Target now projects fiscal 2013 earnings between $4.70 and $4.90 per share down from a range of $4.85 to $5.05 forecasted earlier.
Other companies, which recently increased quarterly dividend, include Cracker Barrel Old Country Store, Inc. (CBRL - Snapshot Report) by 50% to 75 cents, Helmerich & Payne, Inc. (HP - Analyst Report) by 233% to 50 cents, and Tiffany & Company (TIF - Analyst Report) by 6% to 34 cents.
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