Target Stock Evaluation

 

By now, you are most likely tired of reading introductions, so I'll just get right to it 🙂

If you missed the first three articles here are the links -

JNJ Stock Evaluation

AFL Stock Evaluation

GPC Stock Evaluation

For your ongoing reference, I will continue to list the criteria the stocks need to meet to qualify.  Remember, we are not looking for the highest dividend or the highest potential for growth, we are looking for stocks that we can buy, sit around on our asses, and enjoy steady and increasing dividend checks without causing ourselves too much stress.

MARKET CAP> 2 BILLIONDIVIDEND HISTORY>20 YEARS
P/E RATIO< 20DIVIDEND INCREASES1,3,5 YEAR AVG ALL OVER 5%
CURRENT EPS>3PAYOUT RATIO<70% FOR LAST 5 YEARS
EPS GROWTH ESTIMATE>3%

And with that, stock #4, which is a pretty popular one nowadays...

Target-Logo

 

Description From Google Finance:

Target Corporation is engaged in providing everyday essentials and fashionable, and differentiated merchandise at discounted prices. The Company offers its products through stores, online or through mobile devices. The Company sells an assortment of general merchandise and food through its store and digital channels. Its general merchandise stores offer an edited food assortment, including perishables, dry grocery, dairy and frozen items. Its urban format stores, CityTarget and TargetExpress, offer edited general merchandise and food assortments. Its digital channels include an assortment of general merchandise, including various items found in its stores, along with a complementary assortment, such as additional sizes and colors sold online. The Company’s brands include Archer Farms, Simply Balanced, Boots & Barkley, Circo, Embark, Gilligan & O’Malley, Market Pantry, Merona, Room Essentials, Smith & Hawken, Spritz and Sutton & Dodge.

Description In Non-Business Jargon:

Everyone should know Target.  Fun fact - I am a former Target employee - cashier and cart guy! I really enjoyed working there. I wish I had known about investing back then because a good investment would have been right in front of me.  But then again, I was just a dumb kid in high school who was probably wasting his money on buying cheap grain alcohol and movie theatre tickets...but I digress...

Basic Statistics

 

MARKET CAP44 BILLIONEPS GROWTH (5 YR EST)10.01%
CURRENT PRICE$72.61PEG
1.63
CURRENT P/E16.28PEGY1.24
CURRENT EPS4.46BETA0.59

 

P/E Under 20: Check. Within our normal limit.

EPS Current + Projected both over 3: Check. Earnings are high at 4.5, and there is fairly significant growth of 10% expected over the next 5 years, which is a big bonus. 

PEGY: No criteria here, but the PEGY ratio is strong here.  For every $1 we pay we can expect $1.24 worth of growth and returns ($1 or less is ideal).  Its pretty rare to see a PEGY ratio this low when we are talking about a long standing dividend payer.  As we saw with JNJ and GPC, something in the 2 range is not outrageous for a stable stock.  We saw a similar value in the AFL evaluation, which leads me to believe there's plenty of value in the current price.

Dividend Information

 

DIVIDEND AMT$0.56DIV GROWTH - 1 YR17.1%
DIVIDEND YIELD3.08%DIV GROWTH - 3 YR
20%
PAYOUT RATIO50.2%DIV GROWTH - 5 YR23.4%
HISTORY47 YEARSPAYOUT RATIO (prev 5 years)20%, 21%, 26%, 29%, 52%

 

History: Check. 47 years of consecutive increases. No complaints here.  Sort of surprising when I first looked into Target, because I generally got the impression its a fairly new company, but its been around for a long time now.  People would be surprised to know that TGT has a dividend streak 7 years longer than Walmart (another safe stock that barely missed this top 5).

Dividend Yield: Check. Over our 2.5% threshold.  3.08% is a pretty average payout.  Most of the companies that have an extremely long dividend history will be around 3%, because they have carefully calculated what the can afford to pay with a margin of safety for rough years and setbacks in the business.  

Dividend Increases: Check and check.  Huge dividend increases for TGT in the last 1,3, and 5 year periods.  All over 15%! That's a dream come true to dividend investors.  Most of us would be happy with a 5% raise in our daily salary...and this is triple that in your dividend payment.  No work required :).  It's pretty rare to see this kind of dividend growth in a company that has made an increasing payment for 47 years in a row.

Payout Ratio: Check. Payout ratios were very low until recently, but so was the dividend paid out.  They have made an active effort to increase it.  Its not ideal that the most recent ratios are significantly higher at 52% and 50%, but those aren't alarming levels for me.  Its no secret Target has gone through some recent struggles with the data breach.  Being able to increase their dividend over 15% while this was happening and still keep payout ratios in the low 50s is impressive.  I expect a rebound in sales and performance this year and the payout ratio should remain consistent. 

$1000 Invested in January 2011

 

Obviously, this section doesn't do us any good if we DIDN'T invest $1000 in January 2011, but I figured it would give you an idea of how the stock has paid off in the recent future.  Don't read too much into this, as it serves as mostly motivation to begin investing as soon as possible and let time in the market work in your favor.

Present Value (as of 01/03/2015) = $1,390 with dividend reinvestment for an average return of 6.81% per year.

Summary

 

As I said before, TGT is a rare find at its current price, in my opinion.  Dividend stability of 47 years, huge dividend increases of 15+% in recent years, and a low PEGY ratio which means we aren't paying a premium for its stability, as we are with stocks like JNJ and GPC (which, by the way, I'm okay with).  Sure, the price has fallen in 2015 because of the data breach, but that doesn't affect the bottom line for me.  Smart investors take advantage of temporary setbacks for long term value, and I believe that's what is happening here.  I like what I see in all these numbers.  In fact, this stock is probably the most likely company to pay off in the near term when the price returns to what is was before the breach.

 

My current plan, like the other 4 foundation stocks, is to build my TGT position up to 6% of my total portfolio and continue to collect my dividends, while holding out hope for some price growth. 

 

One more post will be coming to round out my 5 foundation stocks.

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http://monthlycents.com/2016/01/05/target-stock-evaluation/

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