Target is a retail giant that has been on such a big growth spree over the last few years that it is easy to forget it does pay a dividend. Not only that, but this past summer it joined the all exclusive list of Dividend Kings, or businesses that have increased their dividends for 50 years at minimum. Does that help make Target a good dividend stock? Let us take a look.
What makes a dividend stock great?
A great dividend stock will have three main features: a growing dividend, a high yield and a stable source of money to fund its dividend.
Now, a higher yield could be relative. There are several super-high yields, which are often issued by real estate investment trusts. These REITs are built in a way so that they will have to pay out about 90% of their income stream as dividends, so they are naturally great dividend stocks. Some examples of extremely high-yielding real estate investment trusts are Sabra Health Care and Annaly Capital Management.
As impressive as these may sound, traders– even those who are focused more on income — would not want only these types of investments. These might have more exposure to the macroeconomic factors (such as increasing interest rates and changing retail trends) than a lot of stocks, which might impact their ability to pay out and operations.
A growing dividend is crucial for a few reasons. It means the business is operating well and also bringing in a greater amount of cash to help support its dividend. It also means the dividend should see a growth rate that is fast enough to make it a great investment when there are many other instruments you should consider, such as bonds.
Lastly, it only makes sense that you invest in a business that has a very stable income source that can fund its dividend. This is more often tied to the payout ratio, or the amount of its money that it pays out as dividends. If it is paying out too much money, the worry is that it will not be able to fund its operations. But if it is too low, it might not be paying out a lot of its money to shareholders.
Does Target make the cut?
Target made big waves throughout the Covid-19 pandemic with its great omnichannel services that helped power high sales growth. Revenue went up more than 20% in 2020, with its drive-up sales growing 600%. But before 2017, growth was slowing, and Target was just another large retailer trying to make everything work.
So far, its digital investments have been fueling a more robust growth cycle. In 2021, sales increased 13% on top of the 2020 figure, and net income increased 12%. Between the omnichannel investments, innovative shipping strategies and its own brands, the retailer’s future potential seems solid.
Target increased its dividend 32% in the month of June to $0.90 per share quarterly, which was the company’s 50th consecutive increase. At the current stock value, Target’s dividend yields about 1.61%, which is over the S&P 500 avg. of 1.44%.
If you are only looking its yield, Target is just over the average. But if you are looking for a good dividend stock that provides the full trifecta of growth, cash generation and high yield, Target is a great choice to give you a long-term source of income as an excellent dividend stock.