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Target's (TGT) Dividend Hike Cheers Investors Amid Inflation Woes

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Target Corporation TGT raises its dividend by 20% to $1.08 per share from the prior dividend of 90 cents, which will be payable on Sep 10 to shareholders on record as of Aug 17. This marks the 220th successive dividend payment and the 51st year of dividend hike by TGT. The dividend increase is likely to come as a relief for investors since the company has lowered its second-quarter fiscal 2022 operating margin view just a few days ago due to inflation and excess inventory. Notably, management envisions fiscal second-quarter operating margin rate to be 2%, down from the earlier-guided view of 5.3%.

We note that shares of this company have lost 32.7% year to date compared with the industry’s decline of 18%.

For the unaware, the company announced aggressive actions to optimize its inventory for the rest of fiscal 2022 in response to the tough operating environment, thanks to soaring inflation and changing consumer behavior.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

The actions include additional markdowns, removing excess inventory and canceling orders. Some other notable efforts are the addition of incremental holding capacity near ports to enable supply-chain flexibility, pricing actions in a bid to mitigate high transportation and fuel costs, and working with suppliers to shorten travel time in the supply-chain process.

Target is also undertaking cost-control measures, such as working with vendors to offset inflationary pressures and driving continued operating efficiencies. It is on track to add five distribution centers in the next two fiscal years to enhance its supply-chain situation.

This Zacks Rank #5 (Strong Sell) stock plans to sell fewer products in its home categories as customers have reduced discretionary spending due to the ongoing inflation. Previously, the company had undertaken bold steps to boost growth, including exiting the Canada business and increasing investments to upgrade stores, which yielded desired results.

Coming back to the news, the company has a five-year annualized dividend growth rate of 6%, reflecting dividend increases for five consecutive years. Based on its share price of $154.55 on Jun 9, Target currently has a dividend yield of 2.3%. Moreover, the company’s current dividend payout ratio is 29.9%.

Dividend payouts are the biggest enticement for investors and Target is committed to boosting shareholders’ wealth. Notably, it is a windows-and-orphan stock with a long history of regular reliable dividends. In fiscal 2021, the company paid out $1.5 billion of dividends to shareholders.

Also, the company expects to get back on track in the second half of fiscal 2022 and beyond. Notably, TGT predicts an operating margin rate of 6% for the second half of fiscal 2022. Also, the company continues to anticipate low to mid-single-digit revenue growth for fiscal 2022.

Target has been undertaking several strategic endeavors — be it new stores, owned brand innovations, national brand partnerships, or expansion of same-day services and rollout of sortation centers — to drive engagement, traffic and market share gains.

These have been contributing to the company’s sales performance, as evident from first-quarter fiscal 2022 results, wherein the top line beat the Zacks Consensus Estimate and grew year over year. Comparable sales increased for the 20th successive quarter, gaining from growth in both store and digital channels. Target registered a sturdy performance in Food & Beverage, Household Essentials and Beauty categories.

Summing Up

Target’s impressive fundamentals and strong footing in the industry, along with a solid portfolio, make it a promising stock. It draws further investor attention through its regular dividend payouts and commitment to enhance shareholder returns. A VGM Score of B and a long-term growth rate of 12.9% reflects its inherent strength.

Stocks to Consider

Here are three better-ranked stocks to consider — Boot Barn Holdings BOOT, Dillard’s DDS and Kroger KR.

Dillard’s operates as a departmental store chain selling fashion apparel and home furnishings. It presently sports a Zacks Rank #1 (Strong Buy). DDS has a trailing four-quarter earnings surprise of 224.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Dillard’s current financial year sales suggests growth of 6.1% while the same for EPS indicates a decline of 33.9% from the year-ago period’s reported numbers. DDS has an expected EPS growth rate of 12.6% for three-five years.

Boot Barn, which provides western and work-related footwear, apparel and accessories, currently has a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 25.2%, on average.

The Zacks Consensus Estimate for Boot Barn’s current financial-year sales and EPS suggests growth of 17% and 4.4%, respectively, from the year-ago period’s reported figures. BOOT has an expected EPS growth rate of 20% for three-five years.

Kroger, which provides an array of goods ranging from household essentials, groceries and electronics to toys and apparel for men, women and kids, currently carries a Zacks Rank #2. KR has a trailing four-quarter earnings surprise of 22.1%, on average.

The Zacks Consensus Estimate for Kroger’s current financial-year sales and EPS suggests growth of 3.2% and 4.1%, respectively, from the year-ago period’s reported figures. KR has an expected EPS growth rate of 9.9% for three-five years.


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Target Corporation (TGT) : Free Stock Analysis Report
 
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