Investors who are looking for a beaten-up stock that pays a strong dividend and has the potential to outperform the market in the next 12 to 18 months should buy Target Corporation (NYSE:TGT). Target stock, which is down some 9% over the past month, hasn’t delivered the gains investors hoped for. But purely from a risk-vs.-reward perspective, TGT stock has many more positives than negatives.
True, the company didn’t report a great second quarter, which spooked investors, especially since rival Wal-Mart Stores, Inc. (NYSE:WMT) — in the same week — crushed Wall Street’s expectations. Complicating matters, TGT blamed Apple, Inc. (NASDAQ:AAPL), among others, for its horrible performance. But Target stock has paid the price for that debacle.
It’s now time to look ahead — here’s why TGT is a dependable dividend stock regardless of its recent struggles.
What’s Ahead for Target Stock
With TGT stock currently trading about $69 per share, the stock is priced at just 12 times fiscal 2017 estimates of $5.38 per share. That’s about five points below the average multiple for stocks in the S&P 500. This means, if Target stock was priced on-par with the rest of the market, it would be valued today at around $90, or some 30% higher.
So, from that standpoint, good luck finding a better bargain. Not to mention, assuming TGT does earn $5.38 per share in fiscal 2017, it would mark year-over-year earnings growth of about 8%, which is also above the projected growth rate of the S&P 500 index.
And that brings us to the dividend, which is also impressive. With Target stock trading around $69, the company’s 60-cent-per-share quarterly dividend yields 3.50% annually, which 1.5 percentage points above the average stock in the S&P 500 index. Target, which announced a 7.1% increase in its dividend in June, is one of the more generous dividend payers in its category.
This recent increase marks the 45th consecutive year that TGT has boosted its annual dividend. And while Target still has some retail challenges to overcome, it’s strong dividend, which affirms confidence in its capital position, suggests investors should be patient with TGT stock.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
