Target's (NYSE:TGT) Shareholders Will Receive A Bigger Dividend Than Last Year

Target Corporation (NYSE:TGT) has announced that it will be increasing its periodic dividend on the 10th of September to $1.08, which will be 20% higher than last year's comparable payment amount of $0.90. The payment will take the dividend yield to 2.2%, which is in line with the average for the industry.

Check out our latest analysis for Target

Target's Earnings Easily Cover The Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. But before making this announcement, Target's earnings quite easily covered the dividend. The business is earning enough to make the dividend feasible, but the cash payout ratio of 78% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

Looking forward, earnings per share is forecast to rise by 24.4% over the next year. If the dividend continues on this path, the payout ratio could be 25% by next year, which we think can be pretty sustainable going forward.

Target Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of $1.20 in 2012 to the most recent total annual payment of $3.60. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Target has seen EPS rising for the last five years, at 21% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. However, lack of cash flows makes us wary of the potential for cuts in the dividend's future, even though the dividend is generally looking okay. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Target that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.