Retail Stocks: Target (TGT)
Target (TGT), like Staples, has its share of warts. The company has been battered by billion-dollar losses in its Canada unit, and the fallout from recent security issues and the loss of customer data. But long-term investors should take comfort in the great track record that Target has in protecting shareholder value through any market environment.
Target has raised its dividend every year since 1967 — a run of 47 years and counting. Also, it has grown its dividend by an annual rate of 20% for the past 10 years. And going back 20 years, it’s a not-too-shabby 13%. TGT also been committed to stock buybacks over the last decade or so. Since 2002, Target has reduced its shares outstanding from 1.3 billion to just 638 million as of its last reporting. That’s a reduction of 44% in TGT stock.
Target has been beaten down and nobody likes it right now, meaning there could be long-term value for income investors willing to buy on a dip and hold through future dividend increases.
When you look at the fundamentals, there is a good case for a value investment despite the recent spate of bad headlines. Target stock is priced at just 12 times forward earnings and 0.5 times sales. Considering the much higher valuations across the market and even elsewhere in retail, that means at worst you are buying at a fair price instead of chasing an earnings multiple that won’t last.