Why Target’s High Dividend Yield Isn’t Attracting Investors
Target (TGT) has a strong record of rewarding its shareholders with increasing dividends and share repurchases. In fact, Target is a dividend aristocrat, which means it has increased its dividends for more than 25 consecutive years. Target has increased its dividend for 46 consecutive years. In fiscal 2016, the company returned about $5.0 billion to its shareholders, which includes $3.7 billion in share repurchases and $1.3 billion in dividends.
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Moreover, in terms of dividend yield, the company outperformed its peers. Target’s current dividend yield of 4.9%, based on the closing price of $50.87 on July 12, 2017, is significantly higher than its peers. Walmart (WMT), Costco (COST), Kroger (KR), and Dollar General (DG) currently have dividend yields of 2.8%, 1.3%, 2.2%, and 1.5%, respectively. Also, Target’s dividend yield is higher than the current dividend yield of the SPDR S&P 500 ETF (SPY), which is 1.9%.
What’s the concern?
Despite the company’s higher dividend yield and solid track record of dividend payments, its declining dividend growth rate is upsetting investors. The chart shows that the company’s dividend growth rate is sliding, raising concerns about the company’s ability to generate higher cash flows in the future. Recently, Target announced a 3.3% increase in its quarterly dividend, which is significantly lower than its growth rates in the past.
Going forward, Target’s dividend growth rate is expected to remain low at least for the foreseeable future given the company’s soft start to the current fiscal year and planned investments.