Should You Buy Dividend Aristocrat Target And Its 1.32% Dividend?
Over the last couple months, I’ve shown you stocks to avoid…
Stocks to consider buying…
And some of the best stocks related to the coming Internet of Things… Which you can find linked further below.
All these recommendations are to help you either avoid pain and terrible stocks. Or to help you find potentially great stocks to invest in during this pandemic.
If you do both well, it helps you earn higher than average investment returns and build wealth.
Because the fewer investment losses you have the more capital you keep. And the more capital you keep the faster you compound your money.
To help you figure out how to protect your retirement portfolio in these uncertain times, today I want to answer – Should You Buy Dividend Aristocrat Target And Its 1.32% Dividend?
Target (TGT) is one of the United States largest retail stores… Only second behind Walmart.
It has almost 1,900 stores nationwide where it sells things like clothes, groceries, and home furnishings.
It’s based in Minneapolis Minnesota. It has a $102.3 billion market cap. And it pays you a 1.32% dividend. Which is reason #1 to consider buying its stock.
Target’s 1.32% Dividend
In the last decade, Target’s paid out a total of $20.62 per share in dividends.
At today’s share count of 505 million shares that’s equal to $10.4 billion paid out to shareholders in that time.
Plus, it grew its dividend 144% from $1.10 per share in 2012 to $2.68 per share now.
These dividend payments help you earn cash if you take the money out. Or allow you to buy more shares over time if you reinvest the dividends.
These regular payments will help you earn more money for your retirement. And the solid, stable, and growing dividends will help in any kind of prolonged economic issues like we’re dealing with today.
Its so impressive that its now paid and raised its dividend for 49 straight years which makes it a Dividend Aristocrat.
This year, when it raises its dividend for the 50th straight year it will become one of only 31 companies on Earth with the prestigious Dividend King title.
It can do this because it earns good profits. Which is reason #2 to consider buying Target stock.
Target Earns Good Profits
Over the last decade it earned an average operating income margin of 6.5% per year.
I look for anything above 10% so this is well below what I look for.
Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 4.7% per year on average.
I call this the “Cash Machine” metric.
I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above. If a company surpasses both thresholds it makes it a great operating business that is safe and ultra-valuable.
Target falls short of both these important metrics which means it’s a great business… But not quite a world class one.
Now, let’s move onto its debt.
Target Has Low Debt Levels
As of this writing TGT has $6 billion in cash compared to $14.82 billion in debt.
As a percentage of its balance sheet total liabilities make up 71.82%.
Debt makes up only 14.5% of its market cap.
And its debt-to-equity ratio is 1.05.
These all fall well below or right at the minimum thresholds I look for… As one example, I look for debt to equity ratios to be below 1.
This gives it a large margin of safety which makes up for its low profitability margins.
And gets us to our last thing to look at… Valuation. Is it cheap enough to buy?
Target IS NOT Cheap…
With the markets at or near all-time highs you’d expect a good stock like Target to be selling at an enormous valuation.
Unfortunately, it is.
As of this writing its P/E is 23.8.
Its P/CF is 9.9.
Its forward P/E is 24.
And its enterprise value to operating income – EV/EBIT is 16.7.
On all three metrics at the top, I look to buy investments below 20 to consider them undervalued.
And on EV/EBIT I look to buy stocks below 8.
These metrics combined show that Target is overvalued right now.
And this means owning its stock does not give you a large margin of safety in investing terminology.
When you invest in stocks that have a margin of safety it makes the investment safer. And it also means you should expect to earn higher returns owning it in the coming years.
The inverse of this is also true…
When you invest in a stock without a margin of safety it makes the investment riskier. And it also means you should expect to earn less owning its stock going forward.
With Target being overvalued right now, its stock does not offer you a large margin of safety… Especially when you consider its below average profits.
If you’re looking for a solid, safe, stable, and enormously profitable investment to buy to earn high and safe returns for your portfolio – consider buying soon to be Dividend King Target… But only when its cheaper.
And consider one of the other investments below.
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- Should You Buy Cisco Before Earnings?
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- Buy This 7.9% Dividend King Today
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.