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This is Why Target (TGT) is a Great Dividend Stock

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Target in Focus

Target (TGT) is headquartered in Minneapolis, and is in the Retail-Wholesale sector. The stock has seen a price change of 33.62% since the start of the year. The retailer is paying out a dividend of $0.64 per share at the moment, with a dividend yield of 2.9% compared to the Retail - Discount Stores industry's yield of 0.92% and the S&P 500's yield of 1.87%.

In terms of dividend growth, the company's current annualized dividend of $2.56 is up 1.6% from last year. In the past five-year period, Target has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.44%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Target's current payout ratio is 46%. This means it paid out 46% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, TGT expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $5.92 per share, with earnings expected to increase 9.83% from the year ago period.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that TGT is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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