We recently published a list of The 12 best dividend stocks for steady growthIn this article, we will look at how Target Corporation (NYSE:TGT) compares to other dividend stocks.
It’s well known how important high-dividend stocks are to investors. Although dividend stocks have been slow to perform recently, largely due to the boom in AI stocks, their long-term value remains undeniable. Investors seem to be increasingly attracted to dividend growth strategies, realizing that the focus should now be on growth, not just yield. The Dividend Aristocrat Index stands out as a strong investment opportunity, as it offers an average yield of about 2.4%, trades at about 23 times earnings, and is expected to deliver average annual earnings growth of 7% in the coming years.
Also read: The 10 best dividend aristocrats according to Wall Street analysts
In the second quarter, U.S. stock markets posted gains, driven by the ongoing enthusiasm for artificial intelligence, which led to a significant increase in growth stocks. Analysts believe that dividend-paying stocks supported by strong fundamentals, sustainable growth prospects, and solid balance sheets are well positioned to benefit from continued economic growth. The current market environment has somewhat blurred the line between technology and dividend stocks, especially since major technology companies have introduced dividend policies this year. Whether these companies can continue to increase their payouts remains to be seen. However, the outlook for dividend growth appears promising. In the first quarter, U.S. companies increased their cash reserves to a record $4.11 trillion, supported by a robust economy and relatively high interest rates that have accelerated the dividend growth process. According to S&P Dow Jones Indices, over 175 companies in the S&P 500 announced a dividend increase or introduced a dividend payment in the first half of 2024.
Another factor that is increasing the importance of dividend growth stocks is the upcoming Federal Reserve interest rate decision in September. Paul Baiocchi of SS&C ALPS Advisors believes this is a prudent strategy as he expects the Fed to start cutting interest rates. The chief ETF strategist made the following comment on CNBC’s “ETF Edge”:
“Investors are once again focusing on dividends from money markets and fixed income securities, but also – and this is important – on leveraged companies that could benefit from a falling interest rate environment.”
He continued:
“You look for dividends as part of your methodology, but you look for dividends that are durable, dividends that have grown and that are well supported by fundamentals.”
Several reports have pointed out that while dividend growth-focused companies may not generate immediate profits, they offer significant long-term benefits. Nuveen, an Illinois-based financial planning firm, offered an optimistic outlook on dividend growth strategies this year, highlighting their performance to date. The report suggested that dividend growth-focused companies possess valuable long-term characteristics and are well positioned for strong relative performance in the year ahead. Over time, companies that consistently increase or re-issue dividends have delivered higher annualized returns with lower volatility compared to other equity market segments. While dividend growth-focused companies may not outperform in every market environment, their robust risk-adjusted returns over longer periods make them an ideal foundation for any equity portfolio. With that in mind, we’ll look at some of the best dividend stocks for consistent dividend growth.
Our methodology:
For this list, we looked for dividend stocks with an average dividend growth rate of over 10% over the past five years. From this list, we selected stocks with a dividend growth history of at least 10 years. The stocks are sorted in ascending order of their average annual dividend growth over the past five years.
We also measured hedge fund sentiment on each stock, based on Insider Monkey’s database of 912 funds as of Q2 2024. Why do we care about the stocks hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (Further details can be found here).
A woman shops for groceries at a Target store, her shopping cart full of products.
Target Corporation (NYSE:TGT)
Average dividend growth over 5 years: 11.37%
Consecutive years of dividend growth: 53
Target Corporation (NYSE:TGT) is an American retail conglomerate that operates a chain of discount department stores and hypermarkets. The company experienced significant growth during the pandemic but has struggled to regain those heights. However, the latest quarterly report offered some optimism, sending the stock up over 10.3% between August 20 and 21. Year-to-date, the stock is up 10.7%.
In the second quarter of 2024, Target Corporation (NYSE:TGT)’s comparable sales, which had declined in the previous quarter, recorded a growth of 2%. This growth reflects a 0.7% increase in comparable store sales and an 8.7% increase in comparable digital sales. The company’s revenue for the quarter was $25.4 billion, representing a growth of 2.7% over the same period last year.
Results have given Target Corporation (NYSE:TGT) a sense of confidence, but its outlook remains cautious. Management has indicated that store sales growth will likely slow to 0%-2% in the third quarter, with overall growth for the year expected to follow a similar pattern. Even then, it felt confident enough to raise its earnings forecast for both the third quarter and the full year. The company now expects earnings of about $2.25 per share in the current third quarter and forecasts year-end earnings of about $9.35 per share for 2024.
In the second quarter of 2024, Target Corporation (NYSE:TGT) paid out $509 million in dividends to its shareholders. In June of this year, the company recorded its 53rd consecutive year of dividend growth. The company pays a quarterly dividend of $1.12 per share and has a dividend yield of 2.83% as of August 23. With a five-year average annual dividend growth rate of 11.37%, TGT is one of the best dividend stocks for consistent growth.
According to Insider Monkey’s database, at the end of the second quarter of 2024, 52 hedge funds owned shares in Target Corporation (NYSE:TGT), compared to 67 in the previous quarter. These shares have a total value of over $1.4 billion.
Total TGT ranks 11th on our list of the best dividend stocks for steady growth. While we recognize the potential of TGT as an investment, we believe that some highly undervalued dividend stocks promise higher returns and do so in a shorter time frame. If you are looking for a highly undervalued dividend stock that is more promising than TGT but trades at less than 7 times earnings and yields almost 10%, read our report on the dirt cheap dividend stock.
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Disclosure: None. This article was originally published on Insider Monkey.
