Has Target Hit its Mark?
Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The opening bell rings on January 13th, 1978. A retail chain begins trading on the public market at $0.81. This retail chain, known as Dayton-Hudson, has a logo including one red ring and one red dot in the middle. This tiny retail chain began as Dayton Fry Goods in 1902, and converted to Dayton-Hudson in 1969. Its first location was opened in 1962 in Roseville, Minnesota. Having not even 70 stores, this retail chain is relatively popular, being the 7th largest retailer in the United States, but has a presence in only eleven American states.
Now nearly 35 years later, Target Corporation (NYSE: TGT) is trading around $61.00. This incredible climb has handed initial investors 7556.66% gains, turning $1000 into $75,566.60. Currently, Target is the second largest discount retailer in the United States, having 1,767 locations as of November 2011. Target has a location in every state of the United States except Vermont. Below is map of Target locations in the United States. So can Target continue to reward investors so handsomely over the coming years after it has come so far?
Quality Growth
Target’s 2010 reported earnings per share totaled $4.00. In 2011, Target’s earnings per share grew 7%, reaching $4.28. This represents Target’s growth, not flashy, but reliable. In 2012, earnings per share growth is expected to slow considerably to 0.70%, with earnings per share expected to only reach $4.31. In 2013, the average consensus shows Target’s earnings per share reaching $4.88. This displays an apparent pick-up in growth, as year over year earnings per share growth will reach 13.22%. Much of the growth that is expected from Target is anticipated to be derived from Target’s plans to roll out stores in Canada. Currently, there are no Target locations in Canada. By 2013 and 2014, Target Corporation plans to have 100-150 stores operating in Canada. This is made possible by the deal in which Target purchased the leaseholds for up to 220 stores from the Canadian chain known as Zellers. To obtain these leaseholds, Target is reported to have paid 1.8 billion. Target’s growth is not what it used to be, but is growing at a sustainable pace that will act as a catalyst for Target’s stock price. Just look at Target’s growing sales, operating profit, net income, net margin, and operating margin over the coming years.
Dividend is a Bull’s Eye
Presently, Target pays a quarterly dividend of $0.30, or an annual dividend of $1.20. Target’s dividend currently yields 1.93%. Target has been paying out its dividend ever since the dividend program began in 1987, giving the company a track record of 25 straight years of dividend payouts. This streak is anticipated to continue for the upcoming years, as the dividend has become a true catalyst for the stock. Target’s dividend is not only expected to sustain itself, but also prosper and grow. Just recently, Target’s dividend was raised to $1.44 annually. This surpassed all dividend estimates going out until the year 2015, but since Target has already surpassed 2013 and 2014 average consensuses, new higher targets may be put into place. The expected 2015 dividend raise shows 16.66% growth from current levels, reaching $1.68 annually. Target’s dividend has been one of the reassuring staples of the company, making it a stable investment that yields well north of ten year treasury. Just take a look Target Corporation’s earnings per share, dividend, and rate of dividend (the percentage of net income that is paid out in the dividend) over the coming years.
How Target Stacks Up Against Its Competition
Compared to several of its competitors such as, Wal-Mart Stores Inc. (NYSE: WMT), Costco Wholesale Corporation (NASDAQ: COST), and Dollar General Corp. (NYSE: DG), Target compares relatively favorably.
|
TGT |
WMT |
COST |
DG |
|
|
1 Year EPS Growth |
0.30% |
-3.60% |
12.20% |
22.10 % |
|
3 Year EPS Growth |
13.77% |
9.77% |
12.02% |
69.25% |
|
5 Year EPS Growth |
6.19% |
10.35% |
7.61% |
0.00% |
|
1 Year Dividend Growth |
1.44% |
1.59% |
1.10% |
0.00% |
|
3 Year Dividend Growth |
20.94% |
12.97% |
12.69% |
0.00% |
|
5 Year Dividend Growth |
18.33% |
13.57% |
12.28% |
0.00% |
|
Current Dividend Yield |
2.32% |
2.17% |
1.16% |
0.00% |
|
Price to Earnings Ratio |
14.29 |
15.71 |
26.49 |
22.75 |
|
Price to Earnings to Growth Ratio |
1.21 |
1.44 |
1.66 |
1.04 |
|
Market Capitalization |
40.96 B |
247.61 B |
40.99 B |
18.12 B |
According to DailyFinance.com
Target does not possess the high and explosive growth that smaller competitors such as Dollar General possesses, but pays out the highest dividend in the sector and is the cheapest in the group based on the priced to earnings ratio. Furthermore, Target’s dividend growth is the highest in the sector.
The Foolish Bottom Line
Target has provided outrageous returns to its investors during the past 35 years. The kind of returns seen during this duration of time will almost certainly not be seen during the upcoming 35 years. Instead, what will be seen are decent returns supplemented with dividends. Target will grow and expand internationally, as I doubt Canada will act as a barrier for Target’s expansion. Target is not going to make its investors instant millionaires, but will offer commendable returns over the long run that will prove Target has hit its mark.
makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool owns shares of Costco Wholesale. Motley Fool newsletter services recommend Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
