We recently compiled a list of the 8 Magnificent Dividend Growth Stocks to Buy Now.In this article, we are going to take a look at where Target Corporation (NYSE:TGT) stands against the other magnificent dividend growth stocks.
This year, dividend stocks have underperformed compared to the broader market, largely because tech stocks have captured most of the attention. The Dividend Aristocrats Index, which tracks companies with at least 25 consecutive years of dividend growth, has risen by nearly 10% year-to-date, compared to the broader market’s almost 24% gain. Despite this, dividend stocks remain a reliable choice for investors, consistently delivering returns to shareholders regardless of market conditions.
Investors tend to favor companies with strong histories of dividend growth. This preference stems from the fact that such stocks have reported solid long-term returns, often outperforming the broader market. According to a report by RMB Capital, dividend growers and initiators delivered an annual average return of 9.62% from 1972 to 2018, compared with a 2.40% return of the companies that did not pay dividends. Moreover, the broader market returned 7.30% during this period, underperforming dividend growers. The report further mentioned that companies with a track record of increasing dividends have demonstrated their ability to not only maintain but also grow payouts, even during market downturns. From a portfolio management standpoint, dividend growth portfolios offer good diversification, as companies with consistent dividend growth are typically spread across various industries. This provides an edge over portfolios that prioritize high dividend yields, which are often concentrated in mature sectors such as utilities and, before 2007, financials.
Analysts suggest including dividend stocks in income portfolios. This recommendation is bolstered by the fact that several leading tech companies introduced dividend policies this year and are likely to sustain dividend growth over time, supported by their strong cash flows. David Harrell, editor of Morningstar’s DividendInvestor newsletter, shared his insights on dividend growth during a recent interview with the firm. Here are some comments from the analyst:
“You see headlines about dividend increases. That’s generally viewed as positive. There’s this whole idea of dividend growth investing by identifying companies that are growing their dividends at a regular pace. That’s indicative of companies with strong growing earnings. That’s considered positive. There’s also this idea that dividend stocks can be defensive in recessionary periods.”
While dividend stocks have shown slower performance this year, companies continue to raise their dividends steadily. A recent report from S&P Dow Jones Indices revealed that 480 dividend hikes were recorded in Q3 2024, up from 448 in Q3 2023, reflecting a 7.1% year-over-year growth. The total value of these increases for the quarter reached $14.1 billion. The report also mentioned that over the past 12 months, total dividend increases amounted to $74.7 billion, marking a rise from $63.9 billion in the previous 12-month period.
Our Methodology:
For this article, we scanned the list of Dividend Aristocrats, which are the companies that have raised their payouts for 25 consecutive years or more. From that list, we picked 8 companies with the highest 5-year annual average dividend growth rates. The stocks are ranked in ascending order of their annual average dividend growth in the past five years.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A woman purchasing groceries at a Target store, with a cart full of products.
5-Year Average Annual Dividend Growth Rate: 11.37%
Target Corporation (NYSE:TGT) is a Minnesota-based retail corporation that operates a chain of hypermarkets and discount department stores. The company saw considerable growth throughout the pandemic but has struggled to match those levels since. Nonetheless, the most recent quarterly earnings report brought a note of optimism, driving the stock up by more than 10.3% between August 20 and August 21. TGT has surged by over 8% since the start of 2024 and in the past 12 months, it delivered a staggering return of 40%.
In the second quarter of 2024, Target Corporation (NYSE:TGT) achieved a 2% increase in comparable sales, rebounding from a decline in the prior quarter. This growth included a 0.7% rise in sales at comparable stores and an 8.7% increase in digital sales. Quarterly revenue reached $25.4 billion, marking a 2.7% improvement over the same quarter last year.
These results have boosted Target Corporation (NYSE:TGT)'s confidence, though the company remains cautious about its future. Management expects same-store sales growth to ease, likely ranging from 0% to 2% in the third quarter, with similar growth anticipated for the full year. Despite this, they felt confident enough to increase their earnings forecast for both Q3 and the entire year. The company now projects earnings of about $2.25 per share in Q3 and approximately $9.35 per share for the full year 2024.
Target Corporation (NYSE:TGT) is a solid dividend payer, returning millions to shareholders through payouts every quarter. In the most recent quarter, the company paid $509 million in dividends. The company maintains a 53-year streak of consistent dividend growth and has a five-year average annual dividend growth of 11.37%. With a dividend yield of 2.89% as of November 14, TGT is one of the best dividend aristocrat stocks on our list.
Overall TGT ranks 6th on our list of the magnificent dividend growth stocks to buy now. While we acknowledge the potential of TGT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TGT but that trades at less than 5 times its earnings, check out our report about thecheapest AI stock.
