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Analyzing the Dividend Upside Provided by Target’s Stock

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Target’s dividend history, dividend yields, and payouts

In fiscal 2016, Target (TGT) returned about $4.8 billion in shareholder value in the form of dividends and share buybacks (PKW). Dividend aristocrat (SDY) Target has been paying a higher dividend (NOBL) to shareholders each year for more than 40 years. In fiscal 2016, Target paid out $1.4 billion in dividends (FVD).

Target’s dividend per share (or DPS) has increased at a compounded annual growth rate (or CAGR) of 18.6% from fiscal 2011–2016. In fiscal 2016, Target paid a DPS of $2.16, an increase of 8.5% YoY, paying out about 41% of its earnings as dividends.

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Dividend yields

Target’s stock was trading at a forward dividend yield of 3% as of February 24. Competitor Walmart (WMT) was also trading at a yield of 3%, while Dollar General (DG), Big Lots (BIG), Fred’s (FRED), Ahold (AHONY), and Delhaize (DEG) were trading at forward yields of 1.2%, 1.9%, 1.7%, 2.8%, and 1.7%, respectively.

Share repurchases

Target exceeded its share buyback target for fiscal 2016. Earlier guidance provided by the retailer at its 2015 Investor Day had indicated share repurchases of $2 billion in the year. The company repurchased 44.7 million shares worth $3.4 billion in fiscal 2016. The average cost per repurchased share was $77.07. The company’s weighted average diluted share count fell by 1.1% in fiscal 2016, compared to the previous year, providing some upside to its earnings per share, as we discussed in Part 6.

Part of the reason for the higher buybacks was the cash generated by the sale of the Pharmacies and Clinics business to CVS Health (CVS). The earlier guidance at the 2015 Investor Day has indicated that the company intends to spend ~$3 billion in share repurchases in fiscal 2017.

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