Target (TGT) prides itself for having an uninterrupted dividend policy since 1967. More notably, on June 9, 2022, the company announced an increase in the dividend per share of 20% and now commands a forward dividend yield of 2.62%. But does this bold move make sense in light of changing consumer preferences and high inflation rates? How sustainable is this dividend given Target’s declining cash balance? Is the management just trading higher dividends for much lower or no stock buybacks? Is Target a good long-term investment given that 80% of its sales comes from cyclical discretionary goods? These are the questions I will attempt to answer in this article.
TGT Stock’s Key Metrics
Since 2009 and before 2020, Target showed similar performance relative to the broad market, with some ups and downs.
Figure 1. Target, Walmart (WMT) and S&P 500 Percentage Performance Since 2008
Around 2017, Target began lagging peers as its digital footprint was lacking, while other large ecommerce and brick-and-mortar retailers were rapidly expanding their online presence. Since then, Target undertook significant efforts to renovate its stores and make them serve as fulfillment centers to better facilitate online sales. As Covid-19 hit, Target reaped substantial benefits as it stayed open, and its comparable store sales grew in double digits in 2020-2021.
Table 1. Target Sales and Profitability Metrics
Target is known for relying on discretionary goods to drive its sales. About 80% of sales are coming from apparel, beauty, home furnishing and other durable goods. Unlike Target, Walmart sells a lot of food products, which bring about 56% of its total revenues. This partly explains why Target experienced such a large upswing in comparable sales during the pandemic, as people were forced to entertain themselves at home and flocked to stores