5 Reasons to Buy This Dividend King Now

Today's unexpectedly strong retail sales data has pressured stocks lower, as traders temper their expectations for an imminent Fed rate cut. However, the news of surprisingly resilient U.S. consumers should be a welcome development for the retail sector - including Target (TGT), which is currently the sixth largest retailer globally by sales.

Target has nearly 2,000 stores worldwide, with the big-box chain delivering a wide range of products, from groceries to trendy apparel to home and household essentials, all at competitive prices. After a rough performance in 2023, the stock is now attractively valued - and it offers a rock-solid dividend for income investors, too.

Here are five reasons why TGT looks like a top Dividend King to buy right now.

1) Target Stock Bounces Back

Target stock is down 14% over the past year, underperforming the broader equities market by a considerable margin. The company reported disappointing sales numbers, while also facing serious theft issues in its stores -with CEO Brian Cornell warning that “shrink will reduce this year's profitability by more than $500M compared with last year."

However, TGT recovered from its 2023 lows after posting well-received third-quarter earnings. On the conference call accompanying the results, CFO Michael Fiddelke said they hadn't yet turned a corner on the issue, but “we would expect shrink to not to be quarter-over-quarter headwind in Q4 that we've seen throughout the balance of the year.” 

Despite the stock's sharp rebound from its October lows, TGT is still trading about 23% below its 52-week highs, which means it's still possible to buy the dip.

2) TGT is Attractively Valued

TGT is priced at 16.86 times forward earnings, which is lower than the consumer staples sector median of 18.03. Likewise, the stock's forward price/sales ratio of 0.61 and price/cash flow ratio of 9.23 indicate the shares are priced at a discount to its sector peers. 

Stacking up the stock's multiples against major rivals like Walmart (WMT), TJX Companies (TJX), and Ross Stores (ROST), Target stock is priced at a discount to all of these retailers at current levels.

3) Solid Dividend History

Target’s dividend yield of 3.12% is also notably higher than WMT, TJX, and ROST, as well as the consumer staples sector median of 2.65%. With 55 years of consecutive dividend increases under its belt, TGT is a Dividend King with a strong commitment to rewarding shareholders.

The company has a reasonable dividend payout ratio of 55%, coupled with a $1.91 billion cash balance and a 40% free cash flow margin. This suggests TGT's dividend has plenty of room to keep rising without sacrificing earnings growth.

4) A Return to Revenue Growth 

The retail giant expects to deliver mid-teens growth in comparable sales, and high-teens growth in EPS for 2023. Analysts are targeting EPS growth of 38.9% for this fiscal year, followed by 8.65% growth to $9.09 per share in fiscal 2024.

Longer term, the retailer's sales slump is expected to gradually reverse. After a projected 1.75% revenue decline in this fiscal year, Wall Street expects revenue to dip by 0.34% in fiscal 2024, before returning to growth with a 3.17% rise in fiscal 2025 to $110.23 billion.

5) Analysts Are Upbeat for 2024

Goldman Sachs named TGT its top retail pick for this year, and Piper Sandler has also called the stock “one of our favorite ideas for 2024.” Plus, just this week, Morgan Stanley's Simeon Gutman upgraded the stock to “Overweight” and increased the price target to $165 from $140.

Out of the 29 analysts currently tracking the stock, 13 have a “Strong Buy” rating, 3 have a “Moderate Buy” rating, and 13 have a “Hold” rating on Target. The average 12-month price target is $151.56, implying expected upside of 8.9% from here.