Up to date on September twenty ninth, 2023 by Bob Ciura
Goal Company (TGT) has elevated its dividend for 55 consecutive years. In consequence, Goal has a place on the unique checklist of Dividend Kings.
The Dividend Kings have raised their dividend payouts for a minimum of 50 consecutive years.
You possibly can see all 50 Dividend Kings right here.
You possibly can obtain the total checklist of Dividend Kings, plus necessary monetary metrics resembling dividend yields and price-to-earnings ratios, by clicking on the hyperlink under:
To lift dividends for 50+ years in a row, an organization should have sturdy aggressive benefits and long-term development potential. It should additionally possess a recession-resistant enterprise and a administration crew that’s dedicated to growing the dividend annually.
Goal possesses all of those qualities.
This text will focus on Goal’s enterprise mannequin, development catalysts, and anticipated returns.
Enterprise Overview
Goal was based in 1902. In the present day, its enterprise consists of about 1,850 big-box shops. These shops provide basic merchandise and meals, and in addition function distribution factors for its e-commerce enterprise. Goal ought to produce about $107 billion in whole income this yr.
Goal posted second quarter earnings on August sixteenth, 2023, and outcomes had been considerably blended. Adjusted earnings-per-share got here in properly forward of estimates at $1.80, which was 38 cents higher than anticipated. Income was $24.8 billion, down 4.9% year-over-year, and lacking estimates by $460 million.
The corporate additionally lowered its full-year gross sales and revenue expectations as a result of weakening gross sales, however rising margins. Comparable gross sales fell 5.4%, which was a lot weaker than the -1.7% anticipated. The corporate stated it was seeing continued development in consumables resembling necessities, magnificence, meals, and drinks.
Nevertheless, weak spot in discretionary classes weighed on outcomes. Similar-day providers grew about 4%, led by 7% development in Drive-Up.
Development Prospects
Goal’s development has accelerated prior to now few years. Its development was solely barely impacted by the coronavirus pandemic of 2020, displaying the power of Goal’s shops and e-commerce companies.
Goal has invested closely in rising new gross sales channels, which have tremendously paid off.
First, Goal has invested closely in e-commerce. The rise in e-commerce initially caught many retail firms flat-footed. Goal has actually revamped its on-line choices and has seen unbelievable development charges.
Supply: Investor Presentation
Goal’s digital efforts are additionally working extraordinarily properly, as we noticed once more in Q2 outcomes, and the corporate’s small-format shops are performing very properly, opening a brand new avenue of development for the corporate within the coming years.
Share repurchases shall be an extra catalyst for earnings-per-share development. The corporate has diminished its share rely by about -4.8% per yr within the final six years.
Total, we count on Goal to develop earnings-per-share by 10% per yr over the subsequent 5 years.
Aggressive Benefits & Recession Efficiency
Goal operates in a tough business – the extremely aggressive retail business. For customers, retail manufacturers typically take a again seat to cost and comfort.
For this reason Goal has invested so closely in retailer redevelopment. That has enabled the corporate to retain its model power, even in a fiercely aggressive business.
Most significantly, it has huge distribution and scale capabilities, which permit it to maintain costs low.
As well as, Goal operates in a defensive area of interest of the retail enterprise. Low cost retail tends to carry comparatively properly throughout financial downturns when customers usually shift from higher-priced retailers.
Goal’s earnings-per-share throughout the Nice Recession are as follows:
2007 earnings-per-share of $3.33
2008 earnings-per-share of $2.86 (14% decline)
2009 earnings-per-share of $3.30 (15% enhance)
2010 earnings-per-share of $3.88 (17% enhance)
Goal was remarkably resilient throughout the Nice Recession. It suffered a 14% decline in 2008 however adopted this with three consecutive years of double-digit earnings development.
Goal once more carried out very properly in 2020, a yr during which the U.S. economic system entered a recession as a result of pandemic. And but, Goal continues to extend its dividend reliably annually.
Valuation & Anticipated Returns
We count on Goal to generate earnings-per-share of $7.60 this yr. In consequence, the inventory is at present buying and selling at a price-to-earnings ratio of 14.5. That is under our truthful worth estimate of 16.0 instances earnings, which means the inventory seems barely undervalued proper now.
If the P/E a number of expands from 14.5 to 16.0 over the subsequent 5 years, shareholder returns could be elevated by 2.0% per yr.
As well as, Goal shares at present yield 4.0%. And we count on 10% annual EPS development over the subsequent 5 years. Placing all of it collectively, Goal inventory is predicted to generate annual returns of 16.0% over the subsequent 5 years.
Last Ideas
After elevating its dividend this yr, Goal eclipsed 55 years of annual dividend will increase. In consequence, Goal has cemented its place within the unique Dividend Kings checklist.
It has maintained so a few years of dividend will increase as a result of its main place within the retail business. It has additionally tailored to the tough local weather for brick-and-mortar retailers extraordinarily properly, due to new retailer codecs and large investments in e-commerce.
The corporate ought to profit from these development catalysts. This could permit Goal to proceed elevating its dividend for a few years to return.
Goal inventory reveals excessive whole return potential. We count on double-digit annual returns for Goal inventory over the subsequent 5 years, making the inventory a purchase.
The next articles comprise shares with very lengthy dividend or company histories, ripe for choice for dividend development buyers:
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