TGT Stock Great for Dividend Income
Finding a promising dividend stock, one that you’d want to hold till your retirement and beyond, is a daunting task, to say the least. But when one comes across a prospect that offers great value for robust fundamentals, one would be a fool to not consider it. Target Corporation (NYSE:TGT) is one such investment that offers promising value to owners of TGT stock.
Among the dividend aristocrats, Target offers a solid 3.08% in yield with a history of consistent dividend payouts that have increased over the years. But I choose Target for more than just its dividend yield. I choose it for what grants it the ability to pay and maintain that dividend.
Target is one of the largest retailers in the U.S. and closely follows the likes of Wal-Mart. Following the Canadian debacle, when the company decided to leave our northern neighbor after bearing heavy losses, Target has been successfully reinventing itself. The Canadian losses may have weighed down heavily on the stock but come this year, Target is poised to gain from a change in its corporate strategy led by a very able team.
Target the Best Retailer Stock in 2016?
Target’s latest expansion strategy has been three-pronged: 1) the company is evolving its business model from traditional brick-and-mortar to include e-commerce; 2) the company is redefining its target market by expanding its footprint from the suburbs to the urban dwellings; and 3) it is creating its own ecosystem to convert one-time shoppers into loyal customers.
E-commerce is on the rise. Amazon.com, Inc. may be dominating this space, but Target is not too far behind. In the last quarter, Target managed to drive over 20% of comparable store sales digitally. Bolstering its digital sales is its savings mobile app, Target Cartwheel, which has helped it drive traffic to stores. Even if prospective customers don’t make the purchase online, the app has served to drive online traffic, which converts to offline traffic.
While the company may have its only physical presence in the U.S., and limited distribution in India, the company is expanding its international presence through the Internet space. Target’s international web site, launched end of last year, has already delivered to more than a 100 countries worldwide. (Source: “International Shipping by the Numbers,” Target, December 17, 2015.)
As for its brick-and-mortar model, the company made a change in that segment, too.
Previously having tried traditional retail in the suburban and more remote locations, Target is now making a move towards the younger, affluent consumer market in the urban areas. Target is now using the concept of smaller, urban express stores. Rather than having a bunch of large stores offering lesser coverage, the company is now opening smaller stores covering more miles in radii. (Source: “Target Might Be Coming to Your Big City in 2016,” Fortune, December 30, 2015.)
In addition, the company keeps remodeling its stores to keep returning customers engaged. This includes not only revamping the product offering, but also redesigning the store layout and interior. In doing so, Target is able to keep up with changing consumer tastes.
To build an ecosystem of loyalty in retail to achieve greater market penetration, the company uses loyalty programs like “REDcard” and “Pharmacy Rewards.” The company has, particularly, created a strong base of returning shoppers through its REDcard program—the debit and credit REDcards offer some great discounts, in addition to free shipping.
Separately, the company is now working on its own mobile payment system. The mobile wallet will allow Target customers to easily pay at store checkout with just a tap of the thumb, increasing utility for returning customers. (Source: “Target in initial development of own mobile wallet – sources,” Reuters, December 18, 2015.)
The Bottom Line on Target Stock
While a trader wagers from quarter to quarter, the intelligent investor takes up an investment for the long haul. An investor’s choices are neither driven by the market nor the investor’s whims, but rather the fundamentals of his or her investment.
Target’s fundamentals are some of the strongest in the retail industry. TGT stock offers higher return on equity (ROE) and boasts better short-term liquidity than Warren Buffett’s favorite dividend retailer, Wal-Mart Stores, Inc. Management pays out a good 45%+ of the earnings in dividends, while also rewarding shareholders through share buybacks. This is made possible through its focused corporate strategy I discussed above.
In a nutshell, I’d be a fool to not consider TGT stock for my dividend portfolio in 2016.