Target Aggressively Targets a Dividend Hike

by Beth Gaston Moon | March 19, 2012 2:00 pm

Target (NYSE:TGT[1]) isn’t afraid of commitment. In fact, the discount retailer announced today that its long-term dividend plan is for an annual payout of $3 per share[2] by 2017 (that’s five years from now, if you can believe it). 

TGT has a solid history of raising its dividend. In 1999, its annual payout was 20 cents[3]; in 2011, it was $1.10. That is technically a 450% growth rate over 12 years. A move to $3 from present levels would be a 173% advance in five years. The dollar-amount-difference, however, moves from 90 cents to $1.90. With almost 670 million shares outstanding, that is a lot of cash to earmark.

Screen Shot 2012 03 19 at 11.22.29 AM 300x158 Target Aggressively Targets a Dividend HikeClick to Enlarge

Target’s earnings have been relatively reliable over the past several years, growing from $2.71 per share in 2006 to an estimated $4.23 in 2013. What’s more, the retailer’s quarterly earnings have topped analysts’ expectations in all of the past four quarters.

Year-over-year earnings growth is projected at 5.9% for the next three to five years, according to data compiled by CNBC’s Earnings Center. TGT says it hopes to stretch its annual earnings to $8 per share by 2017.

So from a fundamental perspective, TGT appears fairly stable, and analysts tend to agree. Of 22 analysts following the stock, six rate it a “strong buy,” eight a “buy,” and eight a “hold,” leaving zero “sell” or “underperform” ratings.

What’s interesting is how the retailer’s dividend growth relates to its stock price. While TGT is currently 40% higher than it was in 1999, the ride hasn’t been free of bumps. The shares followed the broader market into the red in 2008, hitting a five-year low, and lost some ground in 2011 from its late-2010 peak.

Screen Shot 2012 03 19 at 11.45.12 AM 300x160 Target Aggressively Targets a Dividend HikeClick to Enlarge

Dividends are one method companies use to placate their shareholders during times of turbulence or stalled growth. They can also be evidence of a company’s reliability, as dividend payouts indicate a surplus of cash on the books[4]. In fact, TGT officials said the company “continues to generate far more cash than we need to fund” day-to-day operations.

In other Target news, the company said it completed a $10 billion share-repurchase program launched in 2007. The latest buyback, announced in January, authorizes the company to buy back $5 billion of its own stock in the next two to three years.

As of this writing, Beth Gaston Moon does not own any shares mentioned here. 

  1. TGT:
  2. an annual payout of $3 per share:
  3. its annual payout was 20 cents:
  4. surplus of cash on the books:

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