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How Does TGT’s Dividend Curve Look?

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Target’s sales and EPS growth

Target’s (TGT) sales rose 2% in 2015 compared to a 6% decline in 2016. The decrease was due to weak comparable sales and loss associated with the sale of its pharmacy and clinic businesses. Its gross margin expanded 2% in 2015 before sliding 5.3% in 2016. Cost of sales rose in 2015 before decreasing in 2016. Operating income rose 22% in 2015 before falling 10% in 2016, which was due to a decline in operating expense, especially in 2015, which was driven by gains on asset sales. The company’s EPS saw impressive growth in 2015 after negative EPS in 2014. However, the 2016 EPS slipped 12%. Interest expenses fell in 2015 before increasing again in 2016. Share buybacks further enhanced the EPS numbers.

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Sales growth remained flat in 1H17 due to flat comparable sales during the period. The gross margin fell 1% as the cost of sales remained almost flat. Operating income slumped 11% due to higher operating expenses. The company’s EPS jumped 11% as interest expenses fell substantially. Share buybacks further enhanced the EPS number.

Target’s dividend yield

The company’s increasing dividend yield has been a result of growth in dividends and a fall in share prices. Target’s current share price has fallen 19% compared to 2014. The company has maintained a good free cash flow balance.

Target has a dividend yield of 4% and a YTD price loss of 14.5%. Let’s compare that with the broad indexes. The Dow Jones Industrial Average (DJIA-INDEX) (DIA) has recorded a dividend yield of 2.3% and price gains of 18% on a YTD basis. The S&P 500 (SPX-INDEX) (SPY) has recorded a dividend yield of 2.3% and price gains of 15% on a YTD basis. The NASDAQ Composite (COMP-INDEX) (ONEQ) has recorded price gains of 23.2% on a YTD basis.

The PowerShares High Yield Equity Dividend Achievers (PEY) is a dividend ETF with exposure to Target. It has a dividend yield of 2.8% and a PE of 18.7x. The ProShares S&P 500 Aristocrats (NOBL) is a dividend ETF with exposure to Target Corporation. It has a dividend yield of 1.9% and a PE of 21x.

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