Last update on 2024-06-27

Target (TGT) - Dividend Analysis (Final Score: 8/8)

Analyze Target's (TGT) robust and stable dividend policy with an 8/8 score, showcasing performance and stability for income-focused investors.

Short Analysis - Dividend Score: 8

We're running Target (TGT) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Based on the 8-criteria scoring system, Target (TGT) shows strong performance and stability in its dividend policy. The key highlights include a higher dividend yield compared to the industry average, a solid average annual dividend growth rate above 5%, and an average annual payout ratio well below 65%. Target has also demonstrated extraordinary stability and consistency in its dividend payments over the past 20 years, showing remarkable growth. It has a history of paying dividends for over 25 years, indicating long-term commitment and reliability. However, the coverage of dividends by cash flow fluctuated, raising some concerns, but overall, Target's practice of consistent stock repurchases adds to shareholder value.

Insights for Value Investors Seeking Stable Income

Target (TGT) appears to be a solid option for dividend-focused investors due to its strong and growing dividend payments, stable payout history, and commitment to returning value through stock repurchases. The concerns around fluctuating cash flow coverage are worth monitoring, but overall, the positive trends make Target a worthwhile consideration for those seeking reliable and potentially lucrative dividend income.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

dividend yield and its importance for Target.

The dividend yield of 3.0614% for Target is significantly higher than the industry average of 1.51%. This indicates that Target is providing a higher return to shareholders through dividends compared to its industry peers. Over the last 20 years, Target's dividend yield shows a clear trend of substantial growth, starting from 0.6771% in 2003 and increasing to over 3% in recent years. In contrast, the industry average remained relatively lower, never crossing the 2% mark during the same period. Despite fluctuations in stock price, Target has maintained and even increased its dividend payouts (from $0.26 in 2003 to $4.36 in 2023 per share). This strong upward trajectory makes Target an attractive option for income-focused investors. Overall, this high and consistently growing dividend yield positions Target favorably within the industry, showcasing its robustness in providing shareholder value.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate over a specified period reflects the annualized percentage rate of growth of a company's dividend payments. A growth rate higher than 5% is generally considered attractive as it signifies a company's strong financial health and its commitment to returning value to shareholders. A higher growth rate could indicate future stability and potential for higher returns, making the stock more enticing for dividend investors.

From 2003 through 2023, Target's dividend per share growth rate across various years far exceeds the 5% per annum mark in multiple instances, especially notable in the early and late periods. With the average Dividend Ratio sitting at approximately 15.08%, it's evident that Target not only meets but substantially surpasses a 5% Dividend Growth Rate. This demonstrates their robust financial health and adherence to a steady dividend growth policy, making it a favorable option for dividend-focused investors. However, there are a few lower points in certain years which investors should consider, but overall the trend appears positive.

Average annual Payout Ratio lower than 65% in the last 20 years?

A payout ratio indicates the proportion of earnings a company pays to its shareholders in the form of dividends. A lower average payout ratio usually suggests that the company has sufficient earnings to cover its dividends and potentially reinvest in the business.

Over the past 20 years, Target (TGT) has maintained an average payout ratio of approximately 27.24%, which is well below the 65% threshold. This low payout ratio demonstrates that Target has consistently retained a significant portion of its earnings for business reinvestment, growth opportunities, and financial stability. It is important to note that there were a few anomalies, particularly around 2013 where the payout ratio spiked to 61.87% and in 2015 with a notably negative ratio of -84.51%. These spikes could indicate exceptional circumstances, such as substantial earnings adjustments or one-off events affecting profitability. Despite these anomalies, the overall trend of a low payout ratio is a strong indicator of Target's dividend sustainability and prudent financial management. This trend is favorable as it suggests that the company is in a good position to continue paying dividends while also investing in future growth.

Dividends Well Covered by Earnings?

Why is it important that dividends are well covered by the earnings?

It is important because it indicates that the company can sustain its dividend payments using its net income, allowing for reinvestment in the company without compromising its cash flows.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow indicate that a company is generating sufficient cash flow to cover its dividend payouts, ensuring sustainability of dividends.

Analyzing the data reveals a fluctuating trend in how well Target's dividends are covered by its free cash flow. For example, in 2003, the coverage was -0.13, implying the company paid more in dividends than it generated in free cash flow, which is worrisome. A similar issue is evident in 2008 and 2023 with values of -1.81 and -1.22, respectively. On the other hand, in years like 2004 (1.52) and 2005 (2.14), the company comfortably covered its dividends. In general, a ratio of 1 or above is good, but Target often falls below this mark. This significant variability raises concerns regarding the consistency and sustainability of their dividend payouts, although periods of high coverage offer some optimism.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments means that a company has managed to maintain or increase its dividend payouts despite varying economic conditions over the years. This is critically important for income-seeking investors because it signifies reliability and discipline in capital distribution.

Analyzing the data of Target's (TGT) dividend payments over the past 20 years, it is evident that the company has shown extraordinary stability and consistency. Starting in 2003 with a dividend per share of $0.26, the dividends have shown a robust upward trajectory, with the latest dividend per share in 2023 rising to $4.36. This represents a compound annual growth rate (CAGR) of approximately 13.6%. There has not been a single year where the dividend was dropped by 20%, indicating remarkable steadiness. Such a trend is highly positive for income-seeking investors, as it underscores Target's commitment to returning capital to shareholders irrespective of economic cyclicality and business challenges. The company's ability to continuously raise dividends reflects strong operational performance and strategic fiscal management.

Dividends Paid for Over 25 Years?

This criterion evaluates a company's long-term commitment and reliability in paying dividends, typically observed over a period exceeding 25 years.

Target Corp. (TGT) has demonstrated an impressive history of continuously paying and increasing dividends over the past 25 years. From 1998 to 2023, the dividend per share has risen from $0.18 to $4.36. This indicates not only consistency in payments but also a strong confidence in the company's financial health and future prospects. Such a trend is particularly attractive to long-term investors seeking stable and growing income streams. In the given period, the annual increase in dividends reflects Target's solid profit generation capability. As a result, this sustained and increasing dividend payment trend is a robust positive for Target, underscoring its reliability and attracting income-focused investors.

Reliable Stock Repurchases Over the Past 20 Years?

A crucial aspect of dividend analysis for companies like Target includes evaluating their stock repurchase programs over an extended period. Stock repurchases can indicate financial health and shareholder value.

Over the past 20 years, Target has consistently repurchased its shares, as represented by a significant reduction in the number of shares from 914 million in 2003 to approximately 462.1 million in 2023. This consistency is beneficial for shareholders as it often signals confidence from the company's management regarding future prospects. On average, the company reduced its share count by approximately 3.3228% annually, which is a positive trend. The reliable repurchase of shares across nearly each year over the past two decades underscores the company's commitment to returning value to its shareholders, making it a favorable point in the context of dividend analysis.