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This is Why Target (TGT) is a Great Dividend Stock

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Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Target in Focus

Based in Minneapolis, Target (TGT - Free Report) is in the Retail-Wholesale sector, and so far this year, shares have seen a price change of -30.17%. The retailer is currently shelling out a dividend of $0.9 per share, with a dividend yield of 2.23%. This compares to the Retail - Discount Stores industry's yield of 1.02% and the S&P 500's yield of 1.6%.

In terms of dividend growth, the company's current annualized dividend of $3.60 is up 13.9% from last year. Over the last 5 years, Target has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.05%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, Target's payout ratio is 27%, which means it paid out 27% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, TGT expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $14.61 per share, which represents a year-over-year growth rate of 7.74%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, TGT is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).


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