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.

Target Annual Dividend PaymentsClick 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.

Chart of Target (TGT)Click 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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