Earlier today, Target (TGT) announced that its board approved a new $5 billion buyback program which is expected to begin in 2020. In addition to the buybacks, which are equivalent to over 9% of the company’s market cap, TGT also declared its quarterly dividend of $0.66 per share. While the stock is down today, after a big beat in its last earnings report in August, TGT skyrocketed over 20% with further gains in the following days. Although it has pulled back a bit recently, the stock remains elevated, but also still yields 2.47%. That yield is larger than the 2.07% average for other S&P 500 retailers and the broader S&P 500 which yields only 1 bp less than retail.
TGT has also consistently raised its dividend each year going all the way back to 1980. In the past five years alone, the dividend has grown over 7%. While that is a somewhat slower pace than the average for S&P 500 retailers in that time (11.27%), Target’s dividend payout ratio is also low meaning that the company has room to not only keep paying out this dividend but also to raise it further. Taking into account the buyback program and recent strong quarter only adds to the case that the company has the ability to increase the dividend in the future. Additionally, looking at the company’s valuation, it also has a lower price-to-earnings, price-to-book, and EV/EBITDA than comparable companies in its group. Again, that is even though price has seen a massive run higher in the past month. Start a two-week free trial to Bespoke Premium for Bespoke’s most actionable equity market ideas.