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Here’s Why Target’s Dividend Growth Rate Is Declining

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Trend likely to continue

Target (TGT) has a strong track record of rewarding its shareholders with higher dividends and share repurchases. The company is a dividend aristocrat, which signifies that Target has raised its dividend for more than 25 consecutive years—46 years to be exact. 

The retail giant has returned ~$5.0 billion to its shareholders during the last fiscal year in the form of share buybacks ($3.7 billion) and dividends ($1.3 billion). Target recently increased its quarterly dividend 3.3% from $0.60 to $0.62. 

Target’s declining dividend growth rate reflects that the company is facing challenges. In our view, this trend is not likely to change in the near term as its aggressive business investments to fend off competition and near-term soft sales could impact its ability to generate free cash flow. 

Also, Target’s recent wage rate hike and price cuts on several products could further dent its financials.

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Target offers a high dividend yield

A dividend yield indicates how much cash investors would receive for every dollar they invest in a company’s stock. Target’s current dividend yield of 4.2%, calculated on the October 3 closing price of $58.58, is considerably higher than its peers. 

Walmart (WMT), Kroger (KR), and Costco (COST) offer dividend yields of 2.6%, 2.5%, and 1.2%, respectively. Target’s dividend yield is higher than the SPDR S&P 500 ETF’s (SPY) current dividend yield of 2.0%.

Given the competitive landscape and margin pressure coupled with aggressive planned investments, the appeal of Target’s high dividend yield appeal could improve.

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