Tuesday, August 30, 2011

Target's Growing Dividend Yield

I am sure that you have heard of the retailer Target before. The company is the popular retail chain with the big red bullseye. Target is one of the largest retailers in the United States. The company sells just about anything that you need including clothing, household products, power tools, school supplies, and groceries. The big box retailer competes with Walmart and Costco in the discount retail space.  

Target has been one of the few retailers that has been able to carve out a niche for itself competing against Walmart. Target offers a lot more growth potential than Walmart. The company has been able to grow at an 8% rate during the current year which is impressive considering the economic slowdown that has taken place. Walmart has executed its domestic growth plan in a solid manner and now is looking for international growth.

Target recently announced plans to expand into Canada and open up to 150 stores by 2013. Expansion is definitely possible considering that the company generates $5.8 billion dollars in operating cash flow. The firm has been able to generate nearly $70 billion dollars in annual sales and $21.6 billion dollars in gross profit.

Target is not particularly cheap currently trading at 12 times earnings. The stock trades at 2.3 times its book value and 1.1 times earnings growth. It trades at just 0.5 times sales. The firm has just under $900 million in cash and $17.5 billion dollars in debt. Target is becoming more appealing to income investors because of its growing dividend and large amounts of free cash flow.

Target just boosted its dividend yield 20% recently. A company not known for dividend payments is becoming a dividend favorite. The company has a dividend yield of 2.4% which is higher than the historical yield of 2.4%. The current dividend payout of $1.20 a share represents just 24% of earnings. This is an incredibly low dividend payout which leaves substantial room for annual dividend growth.

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