Dividend Kings In Focus: Goal Company

Up to date on September twenty ninth, 2023 by Bob Ciura

Goal Company (TGT) has elevated its dividend for 55 consecutive years. Because of this, Goal has a place on the unique record of Dividend Kings.

The Dividend Kings have raised their dividend payouts for no less than 50 consecutive years.

You possibly can see all 50 Dividend Kings right here.

You possibly can obtain the complete record of Dividend Kings, plus vital monetary metrics akin to dividend yields and price-to-earnings ratios, by clicking on the hyperlink under:

To boost dividends for 50+ years in a row, an organization will need to have sturdy aggressive benefits and long-term progress potential. It should additionally possess a recession-resistant enterprise and a administration workforce that’s dedicated to growing the dividend annually.

Goal possesses all of those qualities.

This text will focus on Goal’s enterprise mannequin, progress catalysts, and anticipated returns.

Enterprise Overview

Goal was based in 1902. In the present day, its enterprise consists of about 1,850 big-box shops. These shops supply common merchandise and meals, and likewise function distribution factors for its e-commerce enterprise. Goal ought to produce about $107 billion in whole income this 12 months.

Goal posted second quarter earnings on August sixteenth, 2023, and outcomes have been considerably combined. Adjusted earnings-per-share got here in nicely forward of estimates at $1.80, which was 38 cents higher than anticipated. Income was $24.8 billion, down 4.9% year-over-year, and lacking estimates by $460 million.

The corporate additionally lowered its full-year gross sales and revenue expectations on account of weakening gross sales, however rising margins. Comparable gross sales fell 5.4%, which was a lot weaker than the -1.7% anticipated. The corporate mentioned it was seeing continued progress in consumables akin to necessities, magnificence, meals, and drinks.

Nevertheless, weak point in discretionary classes weighed on outcomes. Similar-day providers grew about 4%, led by 7% progress in Drive-Up.

Progress Prospects

Goal’s progress has accelerated prior to now few years. Its progress was solely barely impacted by the coronavirus pandemic of 2020, displaying the power of Goal’s shops and e-commerce companies.

Goal has invested closely in rising new gross sales channels, which have enormously paid off.

First, Goal has invested closely in e-commerce. The rise in e-commerce initially caught many retail firms flat-footed. Goal has actually revamped its on-line choices and has seen unimaginable progress charges.

Supply: Investor Presentation

Goal’s digital efforts are additionally working extraordinarily properly, as we noticed once more in Q2 outcomes, and the corporate’s small-format shops are performing very nicely, opening a brand new avenue of progress for the corporate within the coming years.

Share repurchases can be a further catalyst for earnings-per-share progress. The corporate has diminished its share depend by about -4.8% per 12 months within the final six years.

General, we anticipate Goal to develop earnings-per-share by 10% per 12 months over the following 5 years.

Aggressive Benefits & Recession Efficiency

Goal operates in a troublesome business – the extremely aggressive retail business. For customers, retail manufacturers typically take a again seat to cost and comfort.

Because of this Goal has invested so closely in retailer redevelopment. That has enabled the corporate to retain its model power, even in a fiercely aggressive business.

Most significantly, it has huge distribution and scale capabilities, which permit it to maintain costs low.

As well as, Goal operates in a defensive area of interest of the retail enterprise. Low cost retail tends to carry comparatively nicely throughout financial downturns when customers usually shift from higher-priced retailers.

Goal’s earnings-per-share in the course of the Nice Recession are as follows:

2007 earnings-per-share of $3.33
2008 earnings-per-share of $2.86 (14% decline)
2009 earnings-per-share of $3.30 (15% enhance)
2010 earnings-per-share of $3.88 (17% enhance)

Goal was remarkably resilient in the course of the Nice Recession. It suffered a 14% decline in 2008 however adopted this with three consecutive years of double-digit earnings progress.

Goal once more carried out very nicely in 2020, a 12 months during which the U.S. financial system entered a recession because of the pandemic. And but, Goal continues to extend its dividend reliably annually.

Valuation & Anticipated Returns

We anticipate Goal to generate earnings-per-share of $7.60 this 12 months. Because of this, the inventory is at present buying and selling at a price-to-earnings ratio of 14.5. That is under our honest worth estimate of 16.0 occasions earnings, which means the inventory seems barely undervalued proper now.

If the P/E a number of expands from 14.5 to 16.0 over the following 5 years, shareholder returns can be elevated by 2.0% per 12 months.

As well as, Goal shares at present yield 4.0%. And we anticipate 10% annual EPS progress over the following 5 years. Placing all of it collectively, Goal inventory is anticipated to generate annual returns of 16.0% over the following 5 years.

Remaining Ideas

After elevating its dividend this 12 months, Goal eclipsed 55 years of annual dividend will increase. Because of this, Goal has cemented its place within the unique Dividend Kings record.

It has maintained so a few years of dividend will increase on account of its main place within the retail business. It has additionally tailored to the troublesome local weather for brick-and-mortar retailers extraordinarily nicely, due to new retailer codecs and big investments in e-commerce.

The corporate ought to profit from these progress catalysts. This could enable Goal to proceed elevating its dividend for a few years to return.

Goal inventory reveals excessive whole return potential. We anticipate double-digit annual returns for Goal inventory over the following 5 years, making the inventory a purchase.

The next articles include shares with very lengthy dividend or company histories, ripe for choice for dividend progress traders: