Updated on April 30th, 2024 by Bob Ciura
Every year, we publish a review of each of the Dividend Aristocrats, a group of 68 companies in the S&P 500 Index with 25+ consecutive years of dividend increases. We believe the Dividend Aristocrats are among the best dividend stocks to buy thanks to their long histories of annual dividend increases and their strong business models.
With that in mind, we created a list of all 68 Dividend Aristocrats. You can download your copy of the Dividend Aristocrats list (along with important metrics like dividend yields and price-to-earnings ratios) by clicking on the link below:
Disclaimer: Sure Dividend is not affiliated with S&P Global in any way. S&P Global owns and maintains The Dividend Aristocrats Index. The information in this article and downloadable spreadsheet is based on Sure Dividend’s own review, summary, and analysis of the S&P 500 Dividend Aristocrats ETF (NOBL) and other sources, and is meant to help individual investors better understand this ETF and the index upon which it is based. None of the information in this article or spreadsheet is official data from S&P Global. Consult S&P Global for official information.
Next up on our list of Dividend Aristocrats is Target Corporation (TGT).
Target has a long history of dividend growth. The company has grown its dividend for 55 consecutive years. Target is a Dividend King, an even more exclusive list of companies that have increased dividends for at least 50 consecutive years.
Target has been one of the best performing retail stocks over the last five years thanks to its execution on numerous growth initiatives.
Business Overview
Target is a discount retail giant, with a market capitalization of $80 billion. Today, it operates approximately 1,950 stores in the U.S., as well as an e-commerce business. It has a diverse product lineup, with annual sales of more than $107 billion.
The company has implemented many growth initiatives in recent years. As a result, Target has returned to its long-term growth trajectory in the last five years.
Target posted fourth quarter and full-year earnings on March 5th, 2024, and results were quite strong. Adjusted earnings-per-share came to $2.98, which was $0.56 cents ahead of estimates. Total revenue was $31.9 billion, which was 1.7% higher year-over-year, driven mostly by an additional week in fiscal 2023 compared to 2022. Revenue estimates, however, did miss estimates by $400 million.
Comparable sales were down 4.4%, which was 20 basis points better than consensus. Same-day services were more than 10% of total sales, and were up 13.6%, which was led by the company’s very popular Drive Up program. Operating margin came to 5.8% of revenue, which was up sharply from 3.7% a year ago.
Gross margin was 25.6% of sales, up from 22.7% a year ago. The improvement in gross margin was from lower markdowns and other inventory-related costs, lower freight costs, lower supply chain and digital fulfillment costs, and favorable category mix.
Growth Prospects
Target has grown its earnings per share by 8% per year on average over the last decade. The retailer stagnated during 2012-2017 due to its failed attempt to expand into Canada but it has returned to strong growth mode since 2017 thanks to some growth initiatives.
The biggest reason for this excellent growth is that Target has invested heavily in growing new sales channels, which have paid off. First, Target has invested heavily in e-commerce. The rise in e-commerce initially caught many retail companies, including Target, off-guard. Target has revamped its online offerings and has seen rapid growth.
Target has also rolled out its same-day fulfillment service. Lastly, the company continues redeveloping stores and building smaller stores with much less square footage, in places that cannot provide the necessary space to build a large store. They are located in areas that see high traffic, such as densely-populated large cities and college campuses.
Taken together, these measures have had a significant effect on Target’s growth. We expect Target to grow its earnings per share by 10% per year over the next five years.
Competitive Advantages & Recession Performance
Target operates in a difficult industry. Retail is highly competitive and thus it is characterized by razor-thin profit margins. For consumers, retail brands often take a back seat to price and convenience.
This is why Target has invested so heavily in store redevelopment. That has enabled the company to retain its brand strength, even in a fiercely competitive industry. Most importantly, the retailer has massive distribution and scale capabilities, which allow it to keep prices low.
In addition, Target operates in a defensive niche of the retail business. Discount retail tends to hold up relatively well during economic downturns, when consumers typically shift from higher-priced retailers.
Target’s earnings-per-share during the Great Recession are as follows:
- 2007 earnings-per-share of $3.33
- 2008 earnings-per-share of $2.86 (14% decline)
- 2009 earnings-per-share of $3.30 (15% increase)
- 2010 earnings-per-share of $3.88 (17% increase)
- 2011 earnings-per-share of $4.28 (10% increase)
Target proved remarkably resilient during the Great Recession. It posted a 14% decline in 2008 but followed this with three consecutive years of double-digit earnings growth.
Target once again performed very well in 2020, a year in which the U.S. economy encountered a fierce recession due to the pandemic. And yet, Target continues to raise its dividend reliably each year.
Valuation & Expected Returns
Based on the current share price of $161, Target has a price-to-earnings ratio of 17.2. Our fair value multiple is 17. If shares were to revert to their average price-to-earnings ratio, TGT stock would see annual returns decrease by 0.2% over the next five years due to a falling P/E multiple.
At the same time, Target is offering a 2.7% dividend yield. Adding expected annual growth of earnings per share of 10%, total returns come out to 12.5% per year over the next five years. This is a fairly attractive expected return for such a recession-resistant business model.
With annualized expected returns above 10%, we rate TGT stock a buy.
Final Thoughts
Target has faced some major downturns over the last decade. It failed to expand into Canada and struggled dealing with the rise of e-commerce shopping along with the rest of retail, but the company appears to have returned to sustained growth.
Overall, we feel that the current valuation of Target is slightly elevated, but the company’s strong EPS growth justifies a higher valuation. We rate the stock as a buy.
If you are interested in finding more high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:
- The Dividend Kings List is even more exclusive than the Dividend Aristocrats. It is comprised of 54 stocks with 50+ years of consecutive dividend increases.
- The 20 Highest Yielding Dividend Kings
- The Dividend Achievers List: a group of stocks with 10+ years of consecutive dividend increases.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500. - The Monthly Dividend Stocks List: contains stocks that pay dividends each month, for 12 payments per year.
- The 20 Highest Yielding Monthly Dividend Stocks
- The High Dividend Stocks List: high dividend stocks are suited for investors that need income now (as opposed to growth later) by listing stocks with 5%+ dividend yields.
The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly: