Target (TGT) Maintains Dividend King Status Despite Brutal Market
Shares of Target (TGT), once considered a blue-chip stock by many investors, are down 40% over the past year. A 5% selloff following the release of a disappointing Q1 earnings report only compounded matters. However, things are not as bad as they seem over at Target.
Confident Investing Starts Here:
While the Minneapolis-based company is grappling with challenges, I'm bullish on shares of the beleaguered retailer based on its inexpensive valuation, attractive dividend yield, and remarkable track record of consistent dividend growth. Additionally, sell-side analysts see potential upside of over 10% for the stock over the next 12 months, highlighting the value at hand.
Target's Lackluster Results Spell Opportunity
Target reported disappointing Q1 earnings, in which first-quarter sales fell 3%. This was due to challenges that many companies are facing, like tariff uncertainty and a cautious consumer spending environment. This also caused management to lower full-year sales guidance to a low-single-digit decline (down from up 1%) and full-year EPS guidance to a range of $7-9 per share (down from $8.80-9.80).
CEO Brian Cornell acknowledged the challenges Target faced in the first quarter, noting that 'In the first quarter, our team and our business faced an exceptionally challenging environment that affected our performance with declines in both traffic and sales, most notably in our discretionary categories.' He pointed to broader economic pressures, adding that the company encountered 'additional headwinds this quarter, including five consecutive months of declining consumer confidence, uncertainty regarding the impact of potential tariffs…' and other factors.
While these issues are widespread across the retail sector and not unique to Target, they are expected to ease over time as consumer sentiment improves and clarity emerges on trade policy. In the meantime, Cornell remains confident in the company's ability to manage through the turbulence, stating, 'We have many levers to use in mitigating the impact of tariffs, and price is the very last resort,' and emphasizing that Target's 'strategy is to remain price competitive by leveraging the capabilities, long-standing relationships, and the scale that set us apart for many of our retail peers.'
Separately, Target is facing criticism from some activists over the rollback of DEI initiatives. However, in today's highly polarized environment, companies often face backlash no matter their direction, making this more of a reflection of broader societal tensions than a uniquely Target issue.
Discounted Valuation
Target must contend with its share of challenges, but after the selloff, the stock became too cheap to ignore. Shares now trade at just 12x forward earnings estimates, a steep discount to the broader market, as the S&P 500 (SPX) currently trades for 21.5x.
While they aren't necessarily apples-to-apples comparisons based on the different ways their business models and businesses skew (for example, Target has more exposure to discretionary spending), it's also worth noting that Target is considerably cheaper than big-box retail peers like Walmart (WMT) and Costco (COST). Walmart trades for 36.9x forward earnings estimates, while Costco trades for 56.7x.
Analysts expect Target to earn $8.28 per share for fiscal 2026, and the stock looks even cheaper trading at 11.2x. Target itself guided to $7-9 in earnings per share for 2025. Even being conservative and using the low end of this estimate, $7, would yield a very reasonable price-to-earnings ratio of 13.5.
Ultimate Dividend Stock
Recent results highlight Target's struggles and the challenges the company is facing, but they don't diminish the fact that Target is, in many ways, the ultimate dividend stock.
In fact, with 56 consecutive years of dividend growth under its belt, Target is officially a Dividend King (a select group of stocks that have increased their dividend payout for 50 years in a row or more). This is the type of consistency and longevity that income investors can count on. The company has grown its dividend at a healthy 11.5% compound annual growth rate (CAGR) over the past five years.
In addition to this remarkable consistency, Target is becoming quite attractive from a dividend yield perspective. After the selloff, shares now yield 4.8%. These are orders of magnitude higher than the S&P 500 (SPX), which currently yields just 1.3%. It also means that Target's yield surpasses that of 10-year treasury bonds, which currently yield 4.5%.
Based on Target's standing as a Dividend King and its dividend payout ratio of roughly 50%, there also appears to be little chance of the dividend being reduced in the near future.
Target is also returning capital to shareholders with share buybacks. During the quarter, the company repurchased $251 million worth of shares. Unfortunately, the average price for these shares was $114.60, which is now quite a bit higher than today's share price. The good news is that Target still has a massive $8.4 billion of capacity in its share repurchase authorization, so the company should be able to continue to reduce its share count over time at lower prices.
Is Target a Buy, Sell, or Hold?
TGT earns a Hold consensus rating based on 10 Buys, 21 Hold, and two Sell ratings assigned in the past three months. TGT's average stock price target is $105.46, implying an 11% upside potential from current levels.
Dividend Strength Affirms Long-Term TGT Play
Target's recent results reflect the ongoing challenges facing the company, particularly in the current economic and policy environment. However, greater clarity around tariffs is likely to emerge in time, allowing Target to adapt its strategy accordingly. With a 56-year track record of consistently paying—and steadily increasing—its dividend, the company has demonstrated resilience and long-term stability.
Meanwhile, the stock's 40% decline has brought valuations down to compelling levels, trading at approximately 12x forward earnings, well below the broader market and key peers such as Walmart and Costco. The current 4.9% dividend yield and continued share repurchases enhance total shareholder return. While a complete recovery may take time, these fundamentals suggest that long-term investors willing to look past short-term headwinds could be well positioned to benefit from Target's enduring strength as a Dividend King.
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