While experiencing headwinds a few years ago along with many other retail businesses, the Target Corporation (NYSE:TGT) appears to have executed a turnaround and is using its brick-and-mortar advantage to offer a full omnichannel retail experience to stave off Amazon’s (NASDAQ:AMZN) expansion into this channel, as well as potentially threaten Amazon’s e-commerce supremacy.
Competing with Amazon’s current e-commerce domination is extremely difficult and expensive. However, Target’s approach is to use the advantage of its existing network of nearly 2,000 store locations and distribution centers across the United States to offer customers a full-scale omnichannel shopping experience that Amazon has not established yet.
Additionally, in a move similar to what Amazon did in 2000, Target has entered into an agreement to provide backend fulfilment services for Tru Kids Brands — the current owner of the Toys “R” Us and Babies “R” Us brand names — at the ToysRus.com website that was relaunched in early October 2019. These purchases enjoy the full scope of Target’s benefits, which include discounts with the Target RedCard and Target’s loyalty program, same-day pick-up and delivery options, as well as returns to any of Target’s stores and more.
Following its restructuring from a 2018 bankruptcy, Toys “R” Us is certainly not the market leader it was when Amazon made its agreement two decades ago. However, the move exemplifies Target’s approach to leverage all potential opportunities into its current plan to offer customers a fully immersive shopping experience across all channels. Additionally, Target is continuing its successful expansion into the New York City market by planning to open eight new stores across four of the city’s five boroughs in 2020 and announcing a new store in Times Square.
While Target’s performance struggled somewhat with the rest of the retail industry for several years after the 2008 economic downturn, Amazon has delivered robust returns during that period. Over the past five years, Amazon’s share price appreciation outperformed Target’s combined total returns from capital gains and dividend income by more than six fold. However, after working on its new strategy over the past two years, Amazon’s share price gains were just 60% higher than Target’s total return over the past three year. Moreover, in full reversal, Target’s returns outperformed Amazon’s asset appreciation over the past 12 months by more than six-fold.
In addition to the current capital gains momentum, Target has been rewarding its shareholders with a long streak of consecutive annual dividend hikes. The company has boosted its dividend payout amount every year for nearly five decades. As a component of the S&P 500 Index with at lease 25 years of consecutive annual dividend boosts, the Target Corporation is one of just 57 Dividend Aristocrats, and on the verge of joining an even more exclusive group of just a dozen Dividend Kings.
Target’s most recent hike boosted the quarterly dividend payout 3.1% from $0.64 last year to the current $0.66 distribution. The $2.64 annualized payout amount corresponds to a 2.1% forward dividend yield. The surging share price suppressed Target’s current yield 31% below the company’s 3.1% five-year average yield.
However, Target’s current 2.1% yield is in line with the average yield of the overall Services sector and 60% higher than the 1.32% average yield of Target’s peers in the Discount & Variety Stores industry segment. Over the past two decades, Target enhanced its total annual dividend payout more than 13-fold, which corresponds to an average dividend growth rate of 13.5% per year. Target’s current 42% dividend payout ratio implies that the company’s present earnings are sufficient to cover current dividend distributions and support continued dividend hikes.
Despite some struggles over the past few years, Target’s share price has advanced well over the long term. Since dropping more than 60% in the aftermath of the 2008 financial crisis, the share price has increased nearly five-fold. However, those gains did not come without some volatility. The share price declined approximately 40% between mid-2015 and mid-2017. After recovering all those losses over the following year, the share price dropped more than 30% again in the last quarter of 2018 driven by the downward pressure of the overall market correction.
However, after that correction, the share price reached its 52-week low of $67.85 in the first week of the trailing 12-month period. From that low, the share price nearly doubled before peaking at its new all-time high of $129.21 at the end of December 2019. Since this new all-time peak, the share price pulled back to close at $123.87 on January 13, 2019. While 4% short of its recent all-time peak, the Jan. 13 closing price was still 80% higher than it was one year earlier and nearly 83% above the 52-week low from January last year.
Target has been able to complement its robust asset appreciation and a steady dividend income flow to total return of nearly 84% over the past year. While the share price pullback in late 2018 limited the longer-term gains, the three-year total return was still 86%. However, even the steadily rising dividend payouts were unable to overcome the 40% share price decline over two years starting in mid-2015, which held the five-year total returns to 80%.
Best Dividend Stocks: Target Corporation (NYSE:TGT)
Headquartered in Minneapolis and founded in 1902, the Target Corporation operates as a general merchandise retailer. It offers household essentials, apparel, home furnishings, small appliances, home improvement and automotive products, music, movies, books, computer software, sporting goods and toys. In addition, it offers in-store amenities, including Target Café, Target Photo, Target Optical, Starbucks and other food service offerings. Target Corporation sells products through its stores and digital channels, such as the company’s e-commerce operation through its own Target.com website. As of late-2019, the company operated 1,868 store locations, as well as 41 distribution centers in 23 states and five additional offices in the United States. Because of this market penetration, Target claims to have a store “within about 10 miles of most doorsteps in America.” To support its global sourcing operations beyond its corporate headquarters in Minneapolis, Target operates more than a dozen sourcing offices globally and a “global capabilities center” in Bangalore, India.
Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.