It’s been a while since I’ve bought any stock. This is mostly due to a lack of value in the marketplace. There are deals on energy and financial stocks, but my portfolio is heavy in both sectors. Target stock has recently trended down in price. In my opinion Target stock has hit the buy zone. I bought Target stock right after the data breach in 2014, but I sold my position in 2015 for a fantastic gain. As of last Tuesday, Target stock is back in my portfolio. I bought 25 shares of Target Corp (TGT) at $68.67 per share, for a total of $1,716.98. This new Target stock position will increase my annual dividend income by $56 dollars. Target is the second retail stock in my portfolio, with Wal-Mart being the other.
Target Corp Company Overview
Target Corporation offers everyday essentials and merchandise to its customers. The Company sells a range of general merchandise and food through its store and digital channels. The Company’s general merchandise stores offer an edited food assortment, including perishables, dry grocery, dairy and frozen items. The Company’s digital channels include a range of general merchandise, including various items found in its stores, along with a complementary assortment, such as additional sizes and colors sold only online. The Company’s brands include Archer Farms, Market Pantry, Threshold, Simply Balanced, Merona, up & up, Boots & Barkley, Room Essentials, Wine Cube, Circo, Smith & Hawken, Xhilaration, Embark, Ava & Viv, Spritz and Sonia Kashuk. The Company’s exclusive brands include C9 by Champion, DENIZEN from Levi’s, Nate Berkus for Target, Cherokee, Fieldcrest, Oh Joy! for Target, Mossimo, Genuine Kids from OshKosh, Shaun White, Kid Made Modern and Hand Made Modern. Source: schwab.com
Target Stock Dividend History
- Annual Dividend Yield of 3.23%
- Annual Dividend Rate (IAD) $2.24
- Payout Ratio (TTM) of 31.76%
- Dividend Coverage Ratio (TTM) of 314.86%
- 3 Year Dividend Growth Rate of 16.8%
- 5 Year Dividend Growth Rate of 19.0%
- 10 Year Dividend Growth Rate of 19.2%
Target has been committed to shareholders by steadily increasing dividends. The chart below shows that Target has been steadily increasing dividends since 2008. It’s important to note that Target even raised its dividend significantly during the last financial meltdown. The past 5-years Target has delivered an impressive 5-year CAGR of 19%.
Target Stock Valuation
- S&P Capital IQ ranks Target 3-stars, with a 12-month price target of $76.00 and a current fair value of $73.80.
- Morningstar ranks Target 3-stars, with a fair value calculation of $74.00.
I’ve recently started using Finbox, which is a new financial service. Finbox makes it really easy to determine the value of a stock. The site does a one button click analysis of a stocks value, that looks like the image below. This calculates 11 models into one score. Per the analysis Finbox shows Target Stock as valued at $74.87, which is 9% upside.
What I really like about Finbox is that I can easily manipulate models within a few clicks as I’ve done in the Dividend Discount Model below. I made an edit that increased the future dividend by 6%, which is in my opinion a good estimate of future increases. This gave me a 15% upside with a fair market value of $79.15.
Finbox is free to join. The free version is good, but the premium is great. Use this link to get a free account.
The F.A.S.T Graph below shows that Target is below the orange and blue lines. For those of you unfamiliar with this tool, when the black line falls below the orange line this indicates a stock is trading below the market average P/E Ratio of 15. If the black line falls below the blue line this indicates a stock is undervalued and is trading below its normal P/E Ratio. Per the graph, over the past 20-years, Target has traded at an average P/E of 18.6. At the time of purchase, Target’s P/E Ratio was 14.2.
Another way of looking at Target, is the Normalized PE chart below. It shows that Target Stock has dropped into the value zone.
Target Stock Takeaways
Retailers have had a tough Q1. Shares of Target, Macy’s, Kohls, etc., have seen flat revenue and inventories grow. As investors we should see more buying opportunity in this space in coming months. There have been a lot of articles lately about the imminent doom facing retailers such as Target. I don’t disagree that Target and others need to adapt to a rapidly changing marketplace. However, I don’t agree with the dire doomsday outlook. I do think retailer stocks will be volatile the rest of this year. For this reason, I’ve taken a small position in Target for now and I’ll average down if prices trend down. Target has a history of raising dividends even during economic downturns. I’m comfortable that for now and into the near future this will continue. So, although I’m a little nervous about this space, I comfortable with Target and the dividend.
What do you think of my Target Stock buy? Are you buying stock or holding cash?
Full Disclosure: Long TGT