Target's (NYSE:TGT) Upcoming Dividend Will Be Larger Than Last Year's

June 12, 2022
  •  Updated
June 27, 2022
NYSE:TGT
Source: Shutterstock

The board of Target Corporation (NYSE:TGT) has announced that it will be increasing its dividend on the 10th of September to US$1.08. This makes the dividend yield 2.5%, which is above the industry average.

View our latest analysis for Target

Target's Earnings Easily Cover the Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, prior to this announcement, Target was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. 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.

Over the next year, EPS is forecast to fall by 21.8%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 40%, which is comfortable for the company to continue in the future.

historic-dividend
NYSE:TGT Historic Dividend June 12th 2022

Target Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from US$1.20 in 2012 to the most recent annual payment of US$3.60. This means that it has been growing its distributions at 12% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Target has seen EPS rising for the last five years, at 21% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On Target's Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payments look okay by most measures, the lack of cash flow could definitely cause problems for them in the future. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 3 warning signs for Target that investors should know about before committing capital to this stock. Is Target not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.