In late November, Target (TGT) shares traded for around $78/share.
Target is now trading for around $59/share; a 24% decline in ~3 months.
Around a month ago, I sent out an email discussing that Target was trading at a bargain price due to unnecessary pessimism.
Target
That was true then – and it is even more true today.
Target is trading at a dividend yield higher than at any point since at least the mid 80’s.
Why has the market turned the last 3 months into Target’s own personal ‘Great Recession’?
Because the company has posted fairly poor results. Comparable store sales fell 1.5% in the company’s most recent quarter (released this morning). Despite this weakness, Target actually grew adjusted earnings-per-share 6.7% in fiscal 2016.
The share price also declined (in my view – I don’t know what every market participant is thinking), because Target’s earnings-per-share guidance for 2017 is $4.00 per share – versus $5.01 in fiscal 2016.
The company’s management is projecting a 20% decline. That is never good.
But what’s interesting is Target is choosing to take this earnings hit. Here’s why, according to Target’s CEO Brian Cornell (emphasis added):
“We will accelerate our investments in a smart network of physical and digital assets as well as our exclusive and differentiated assortment, including the launch of more than 12 new brands, representing more than $10 billion of our sales, over the next two years. In addition, we will invest in lower gross margins to ensure we are clearly and competitively priced every day. While the transition to this new model will present headwinds to our sales and profit performance in the short term, we are confident that these changes will best-position Target for continued success over the long term.”
Target is retooling now to remain competitive later. In short, the company is:
- Investing in growing online sales
- Doubling down on its unique in-store brands
- Better competing on price to drive in-store and online traffic
The retail industry didn’t just become competitive. Target has proven it can grow shareholder value over the long run:
- 45 consecutive years of dividend increases
- 4.6% EPS growth rate over last decade
(despite the rise of Amazon and competition from Wal-Mart and other retailers)
As dividend investors, we don’t have to panic sell. We can sit back and collect Target’s dividends – which should continue to increase over time.
Target is currently trading at bargain prices. The company ranks very well using The 8 Rules of Dividend Investing. It is a strong buy. I am currently long Target.
Target is not the only high quality dividend growth stock trading at a discount today…
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