We all knew I couldn't wait too much longer to make a purchase. The stock market has continued its wild trajectory, but I was able to strike a big name company when they were starting to climb back up. Yes, I was able to shoot my bow and arrow at the "Red Bullseye" in one of everyone's favorite US retailers in Target corporation (NYSE:TGT). Very excited and let's find out why I bought it, the price points and the metrics!
Target is one of the biggest retail corporations out there. When it comes to shopping - I hear - oh, Wal-Mart (NYSE:WMT) or TGT. Now, individuals go there for all types of needs - clothes, food, toys, cosmetics, medicine/prescriptions, you name it and you can do it at TGT. Additionally, we performed a stock analysis wayyyy back in December of 2015 or 6 months ago, which a lot has changed since then… aka price decline and an increase to their dividend - the double bagger! Additionally, this is one of Bertie's 5 always buy stocks when he is looking for a company to buy, however, he hasn't pounced on them just yet, you got this Bert! Don't worry, I am sure he'll grab some once his feet land back on the ground as he had an incredible wedding week, which he wrote about earlier.
Now… why did I purchase? This was easy. They are a dividend aristocrat. At the time I did the stock Analysis in December, they were trading at over $71, and we all know they dipped slightly into the upper-mid/upper $60s (66-69). I thought this was interesting, AND they just had a dividend increase, only for the stock to decrease slightly afterwards. Here we go with the metrics:
1.) Price to Earnings (P/E) Ratio: I purchased the stock at $67.35 this time around, which based on future earnings of $5.14, gave me a P/E of 13.10 This shows signs of undervaluation against the index and their peers, I was happy to see this below 15 going forward.
2.) Dividend Yield: at the price point of $67.35 with a NEW dividend (as they increased late this past week) of $2.40 - a yield at 3.56%, a point that TGT hasn't been to in quite some time. In fact, their 5 year dividend yield average is 2.60%. Therefore, we are talking a full percent higher almost. Loving it.
3.) The payout ratio: Based on those future earnings, the payout ratio calculated out to be 47%. This is smack dead in the middle almost and I have recently wrote why the payout ratio is one of the most important metrics for a dividend investor for sustainability.
4.) Dividend Growth Rate: After increasing their dividend for the 45th straight year, the 5-year dividend growth rate stands at 15% and the 3 year at 11.92%. It was solid in the earlier 2010 years, and the last 2 years have been fairly consistent, similar to Johnson and Johnson (NYSE:JNJ), at 7.6% last year and a 7.1% growth this year. Very solid DGR, I still do love my dividend growth rate.
5.) Shares outstanding: This is even better. From March 2015 to March 2016, TGT has been on a share buyback spree, and have decreased shares outstanding by a whopping 7%! I always will agree that share buy backs are big for dividend investors, as management has the ability to either keep earnings growth, open up more room for dividend growth and/or could be management's best return on their investment as well.
This purchase, all in all, fits the mold of where my goals for 2016 was leaning towards. I do not believe this company will keep me up at night, with $40B in market capitalization, they are one of the most well-known retailers in the country, and the lady LOVES spending all day in their stores. Further, they have the Starbucks (NASDAQ:SBUX) cafe shops on the inside - I know too many people who love to grab a coffee and walk around to browse, it's a little "getaway," I guess? ha ha.
Target Stock Purchase Summary:
Without further ado, here is the summary of my stock purchase. I bought 30 shares of Target Corporation at $67.35 triggered by a limit order trade (Expense = 0.34% for trade). Total Price: 30 X $67.35 + 6.95 =$2,027.45. Total dividends added to my annual income based on purchase of TGT = 30 X $2.40 =$72.00 added per year or $18.00 per quarter going forward. One downside is I did not make a more than $3,000 large investment purchase, as the well has been dryer than usual lately, but I wanted to strike while I saw a great price for a great company. This helps me strive towards my annual portfolio goal and I jumped my position from 50.9068, to a total of 80.9068 now. Therefore, my next dividend will be $48.55… Pumped. Looking forward to seeing my dividends reinvest and pick up almost 3 new shares per year, pending the stock price.
I believe I did see quite a few Target stock purchases over the last few weeks. Anyone else buy after the div increase? What else are you purchasing? Seeing other attractive companies in the ever-so-unpredictable stock market? Mr. Market definitely doesn't know what direction it wants to go on a daily basis, but YTD the market is up quite a bit as a whole. Bah… NO!!!! ha ha. It's okay, we will strike when we can on companies we conclude to be undervalued. Thanks everyone, excited to hear back!