Monday, June 16, 2008

Target-ing dividend growth

U.S. general merchandiser Target (TGT) increased their dividend by $0.02 or 14% from $0.14 to $0.16 per share last week. Target's dividend growth history is impressive. Since 1998 Target's dividend has grown at a compounded annual growth rate of 13.5%. Having a quick glance at Target's EPS (earnings per share) history since 1998, I would rate Target as an excellent candidate for a dividend growth investor's portfolio. Target's EPS growth history has been strong and consistent, as it has not decreased in any year over year period for the past 10 years. One share of Target purchased in 1998 would have cost $21, and therefore an investor who bought shares at that time would be garnering a yield of over 3% on their original investment.

Although Target currently yields only 1.2%, they could likely be compared with Walgreen (WAG), as far as past dividend growth and earnings growth goes. TGT and WAG are both low yielding stocks with strong past dividend and earnings growth. They are also both retailers that operate exclusively in the United States. As an investment idea I like Walgreen much better as I believe convenience-based drug retailing has a strong future due mainly to demographics, as well as other trends such as high energy prices, and changing consumer preferences and time constraints.

Target may not be a bad name to consider adding to my watchlist due to their consistent earnings and dividend growth as well as their strong brand, marketing and position in the U.S. marketplace.


pitz said...

Don't know MG, but I've managed to find myself in a few Target stores in the Bay area recently, and they're not exactly anything to write home about. As Buffet would ask, where's their moat? What do they do that Wal-Mart et al can't? Are they in an industry that will be growing, or will the industry be shrinking because of reduced consumer spending?

Their low dividend is exactly that -- appallingly low.

Theres lots of other fish in the sea -- keep fishing, I'm sure a more compelling value/dividend play will turn up sooner or later.

Dividend Growth Investor said...


I actually like WMT better than TGT. In this environment i believe that WMT is much better situated than the "higher end" Target. In the near term TGT does have a lower P/E ratio. But it might be justifiably low if you ask me. They have their credit card business, which has accoutned for over 20% of profits. I think that most of the people that take those credit cards are people with bad credit.
Anyways, if TGT could maintain its EPS growth, then i will be wrong.
What really stopped me from buying TGT is the really low yield. I want a higher yield :-)

Anonymous said...

Could you please explain the term "compounded divided " rate.

MG (moneygardener) said...

pitz, I agree with you and that is precisely the reason why Target does not excite me.

dgi, Wal-Mart is likely better than TGT in many ways, but I like Costco better than either..

anon, The compounded growth rate of the dividends that the company has paid out. The growth is compounded, meanining that last period's growth portion is used as part of the total value to be grown this period.

Sarlock said...

I concur, Walmart is certainly the stronger buy of the two and much better positioned to grow and survive an economic slowdown in the US. Target may end up going the way of K-Mart in the end. I Target's sales and profits suffer with a slowdown, we may see their dividend lowered or even cut entirely.

Dividend Growth Investor said...


Haven't looked into Costco ( COST). I wonder howSam's Club ( a competitor to Costco) might be doing relative to COST..

MG (moneygardener) said...

I haven't looked at Costco's fundamentals closely, however I would guess that the stock is very expensive. What I meant by liking it is that I think they are extremely well run and they have a bright future ahead of them because they know how to retail better than anyone out there.

Anonymous said...

Sam's Club = Wal-Mart

Mr. Cheap said...

I can't speak about the stock, but having shopped in a number of Targets, I'd disagree with pitz somewhat. They're fun stores to shop at, and have a different feel to WalMart. They always seem to have a good collection of funny t-shirts (I have a Yoda shirt from them that I particularly like, and regularly wear a Target "Charlie and the Chocolate Factory" shirt). Their dirt-cheap food area is fun too (kinda like Ikea's).

Never forget that white people like Target (that's your moat ;-) ).

Dividends4Life said...

Good read! I did a pre-screen on Target, but I couldn't get the numbers to work.

Best Wishes,