I just bought 10 more shares of Target today in an effort to increase my exposure to the consumer discretionary sector. My purchase of Target today increased my total share count to 20 shares. And more importantly, it provided a $17.20 increase to my annual dividends. And since I still have 70 free trades with my brokerage account, the purchase did not cost me any commission fees.
At today's purchase price of $56.90, my yield-on-cost was 3.0%. Target has a current P/E is 18.44, with a forward P/E (1yr) of 14.61. Target has a 5-yr trailing growth of 20% and a LT dividend growth estimate of 12%. Target has paid a dividend to its shareholders since 1967 with 42 years of consecutive increases. That is an increase in all but 5 years!!
POSITIVES
- Target is the second largest U.S. discount store retailer.
- Although Target current has 1,793 Target stores in the U.S. and 124 stores in Canada, analysts believe Target still has room to grow.
- Analysts forecast Target growth at a 10% average pace over the next 5 years.
- Target is expected to continue to increase its penetration into grocery and household consumable goods. Currently, only 35% of its sales.
- Current dividend of $1.72 represents a payout ratio of only 43%.
- I believe Target has strong competitive position and solid long term growth prospects.
- I believe Target has a strong loyal customer base. Personally, I know there are people out there that prefer Target over Walmart simply because of the store experience even though Walmart prices is generally cheaper.
- I believe the Target REDcard and the 5% reward program is under-appreciated. In the long run, as the program gains acceptance, I think purchases through the REDcard reward program will help lift sales and provide added value to the company.
- I believe the remodeling of the stores (P-fresh) to provide more food and consumables will help drive up sales for Target. From my own experience, it is very convenient for customers to do all their shopping in one store.
- I believe the search for new CEO could provide fresh perspective for shares long term.
NEGATIVES
- Walmart has a pretty solid hold of the first place position amount discount store retailers.
- Target has posted lackluster results for past 5-quarters in the US.
- Expansion into Canada has been a disappointment.
- Massive data breach prior to Christmas.
- The stepping down of prior CEO, Greg Steinhafel, could be seen as a negative by some as they only have an interim CEO in CFO, John Mulligan. There could be some disruption in the near term.
- Target also just fired the president of its Canadian stores.
- I believe most of the bad news is already priced into the stock as the stock has a 52-week high of $73.50 ($16.60 or 22.6% more than my purchase price today).
- At the current price, given the growth potential surrounding the REDcard reward program, improving sales in Canada, and increase grocery and household consumable goods, Target is attractively priced.
- Given Target's solid track record for increasing dividends, I believe the dividend outlook is solid. At worse, dividends should remain the same.
What do you think of TGT here? Do you think it’s fairly valued?
I’ll update my Dividend Stocks Portfolio in a few days when the executed purchase has been finalized.
Full Disclosure: Long TGT.
Thanks for reading.
