Why Merrill Lynch Is Bullish on Target Stock
Target Corporation (NYSE:TGT) is revolutionizing the traditional brick-and-mortar retail industry. Investors of TGT stock should take note of these positive developments, which could easily send Target stock soaring through 2016.
On Thursday, three stocks were added to the Merrill Lynch high-quality dividend stocks list. The great news is that Target landed a spot on the list with two heavyweights—Proctor & Gamble and Qualcomm.
How did it manage to do that? Let me start from the beginning…
Dividend-paying value stocks are ubiquitous. But coming across a dividend-paying growth stock is a rare opportunity. Traditionally, high-growth companies do not payout dividends, since they have to reinvest their earnings to keep growing. However, Target stock is one investment that offers both dividends and growth.
The company is heavily investing in two avenues to pull in growth while paying out dividends. The first is supply chain management and the second is technology infrastructure. Target has set aside $2.5 billion for these investments, which are helping redefine Target’s business model. (Source: “Target to spend up to $2.5B a year on tech, supply chain,” CNBC, March 3, 2016.)
Allow me to explain…
Target is moving away from its traditional brick-and-mortar business. The company is cutting down the size of its stores. It’s moving from bigger stores covering fewer locations, to smaller stores covering more locations.
The idea is to reach out to more customers, while streamlining the business according to consumer tastes. Target wants to offer products according to the area and its demographics. This could only be made possible by having efficient supply chain management in place.
The company has recently hired an executive from its rival Amazon.com, Inc. to head its supply chain management initiative. The Amazon executive, Arthur Valdez, will also bring his experience of electronic retail he earned at the e-commerce giant. (Source: “Target Hires Executive to Lead Supply Revamping,” The Wall Street Journal, February 29, 2016.)
Bear in mind that Target is also making an effort to ramp up its e-commerce business. This is why the company is spending so heavily on technology infrastructure.
Target managed to pull off record online sales on Cyber Monday. Digital sales delivered a stellar 34% growth. In fact, Target now beats nearly all of the big brick-and-mortar retailers—including Wal-Mart—when it comes to online sales.
The company has managed to achieve this feat through a revamped web site, targeted Google ads, and its popular interactive mobile app—“Target Cartwheel.” In fact, Target now has plans to launch its own mobile wallet so customers are able to pay directly through their smartphones. In short, the company is going all in on technology.
The Bottom Line on TGT Stock
With a shift toward the high-growth e-commerce industry, Target continues to offer a robust dividend yield of 2.9%. Management has consistently stepped up dividends for more than a decade and the trend is likely to continue.
In a nutshell, TGT stock is one promising dividend growth stock I’d love to put on my watch list for my retirement portfolio.