Dividend Farming Scorecard: Target Corp. (TGT)

Three weeks ago, on May 15, I looked at Target, but didn’t construct a Scorecard.  Instead I built cards for Archer-Daniels-Midland (ADM) and Walgreens (WBA).  Consequently, I thought I’d update and publish a TGT Scorecard.

I’ve been reviewing the Dividend Champions regularly for additions to my Dividend Farm.  TGT is a Champion in a defensive sector – consumer goods.  Although not an underweight sector in my portfolio, I would consider adding TGT to the the farm if it looks good.

The table provides a snapshot of factors I’m scoring for TGT as of June 5, 2019.  Laying out my analysis helps me benchmark a holding or opportunity against target metrics.  It also allows me to quickly compare this firm to alternatives as part of my screening process.

FACTOR	METRICS	TGT
CCC List	Champion	Champion
Current Yield	4.0%	2.56%
Company Profile	Red Flags?	Consumer goods
Industry Leadership	Top 10	#8 in U.S.
Market Cap	$10 B+	$43.8 B
P/E	< 20	14.96
P/B	< 2	3.94
Debt / Equity	< 1	2.66
Dividend History (Years)	25	51
12 Month Price Range	Lower Half	Top 10%
Dividend Payout Ratio	< 75%	44.6%
Portfolio Weight	Under to Slightly Over	Over

CCC List: The DRIPinvesting.org web site provides the list of Champions, Contenders, and Challengers where I normally start.  TGT is a Dividend Champion with 51 consecutive years of dividend growth.  That record is difficult to exceed.

Current Yield:  TGT’s yield is 2.56% which is nearly 35% below my desired objective.  Although not ideal, the low yield alone is not a show-stopper.  There appears to be room for dividend growth and a long history of increases already, but if too many other factors are off the mark, this one won’t tip the scales in favor of adding to the portfolio.

Company Profile:  TGT is a household staple for many consumers when it comes to weekly family purchases.  It’s a solid one-stop shop for a variety of consumer goods from food to furniture and pharma to Starbucks.

Industry Leadership:  TGT is the #8 consumer goods retailer in the U.S. which is solid, but not spectacular.

Market Capitalization:  With a market cap at nearly $44 B TGT has the size to offer stability many retailers crave, but can’t deliver.  The fact that it’s over 4x my target is a plus.

Price to Earnings:  The trailing P/E just under 15 is well within my range indicating investors aren’t overpaying for TGT’s expected earnings.

Price to Book:  The P/B ratio of 3.96 is nearly twice as high as my preferred benchmark.  Paying almost $2 for each $1 of assets means other metrics need to be great for it to stay in consideration.

Debt to Equity:  Debt to equity is almost 2.5x my max.  Not promising.   

Dividend History:  Growing dividends for 51 years is stellar.  If a Champion is crowned after 25 years, making it to 51 is laudable for value investors like this Dividend Farmer.  With a dividend growth rate that’s declined from 15% ten years ago to just over 3% in the past year, growth to get out of the subpar yield range doesn’t look likely.

Price Range:  The price is above the 90^th percentile of its trailing 12-month (TTM) range.  The price was considerably lower 3 weeks ago which means it’s rebounded nicely in less than a month.  However, it means purchasing today wouldn’t constitute bargain shopping.

Payout Ratio:  The payout ratio of 44.6% is well under my 75% ceiling.  TGT has a lot of room to grow its dividend but its recent raises have been on the conservative side.  Although there’s plenty of headroom, it doesn’t appear TGT executives are going to make us of it soon.

Portfolio Distribution:  TGT would be a new holding in my basket bolstering a sector already well represented.  Adding TGT would not put me in dangerous overweight territory, but the firm has to show superior fundamentals to be in contention.

Analysis  

Of the companies reviewed the past several months Target isn’t a dud.  Had I picked it up a month ago, the price run since then would have been a nice bonus.  However, with a couple of the fundamentals well outside my benchmark wheelhouse, a price that’s not a bargain, and other opportunities offering better prospects, TGT won’t be planted on the Dividend Farm at this time.

The thoughts expressed here are those of the author, who is not a financial professional.  Opinions should not be considered investment advice.  They are presented for discussion and entertainment purposes only.  For specific investment advice or assistance, please contact a registered investment advisor, licensed broker, or other financial professional.