Target Corporation: Can Shares of TGT Stock Be Owned Forever?
December 28, 2016
Dividend Growth from TGT Stock
For a stock to be considered one to own forever, certain criteria must be met. For income investors, Target Corporation (NYSE:TGT) stock looks to meet these criteria.
Shareholders should be rewarded over time; otherwise they will drop the stock and pursue other opportunities. I will explain why this won’t be a concern with TGT stock.
TGT stock pays a dividend on a quarterly basis. The last dividend was paid on December 10, 2016, for the amount of $0.60 per share. This dividend payment was the 197th consecutive one, the first being in 1967. In other words, there is steady income coming in from the investment.
The most impressive thing about this dividend payment is the increases seen over a long period. The dividend has risen every year for the past 48 years, which would help to classify TGT stock as a dividend growth stock. Keep in mind that a higher payout over time is ideal because there is always inflation over time to factor in.
The current payout ratio is approximately 46% of earnings, which implies chances to increase the payout. Also note that the board of directors approved a $5.0-billion share repurchase program in September, set to begin after the current $10.0-billion program is completed. (Source: “Target Corporation Announces New $5 Billion Share Repurchase Program and Declares Regular Quarterly Dividend,” Target Corporation, September 21, 2016.)
Valuation of TGT Stock
A ratio to consider to determine whether a stock is undervalued or overvalued when compared to the overall index is the price-to-earnings (P/E) ratio. This ratio can also help investors understand how much is being paid for each dollar of earnings that the company is generating.
For TGT stock, the P/E ratio at present is 13.12 times. Compare this to the S&P 500 index, which has a ratio of 26.01 times. What this means is that TGT stock is undervalued when compared to the index. It is cheaper on a dollar basis as well, with $13.12 being paid for each dollar of earnings, compared to $26.01 for the S&P 500.
When looking at a potential longtime investment opportunity, the day-to-day volatility of the price movement is an important factor to consider. The metric that is used for this is the beta, which is currently 0.60 for Target. This means that if the overall market fell by one percentage point, then TGT stock would fall by approximately 0.60%.
Less volatility than the overall market means there won’t be too many price swings, because Target’s earnings are steady. In fact, the day-to-day news from the financial market will be more like noise.
Final Thoughts on TGT Stock
Shares of TGT stock have been flat over the last year, trading at $73.74 and yielding 3.25%.
With all this in mind, TGT stock should be considered a stock to own forever. The evidence is in the history of shareholder rewards, with opportunities for further dividend hikes down the line.
