Target Corp. (TGT) shares have been hitting new 52-week highs even as the market remains vulnerable to weakness. Target's business model is extremely well-suited for the current economic environment and investors are recognizing this fact. Target offers many basic need products like consumer staples, food, clothing, etc., which are all value-priced. This makes the company relatively resistant to recessions. With economic data coming in weak for the U.S., this could be the perfect stock to own for a number of reasons, including dividend growth. While many investors tend to focus on the current dividend, it also makes sense to consider if and how fast the dividend can grow. Target looks well-positioned to be a top dividend growth stock for the next few years. Here are a few reasons why Target shares could be poised to offer investors dividend growth and capital gains:
1) Target has been reporting solid financial results. For the first
quarter of 2012, Target announced earnings of $697 million, or $1.04 per share. This compares favorably to the 99 cents per share it earned in the same quarter of 2011. Target is likely to remain a top choice for shoppers whether the economy is strong or weak, thanks to value pricing.
2) The strength of Target's business model is a huge positive for shareholders but the dividend and growth potential are also notable. Target has set goals to boost the dividend to $3 per share by 2017. The plan to make Target a top dividend growth stock will be fueled through earnings growth and a strong share buyback program. It has bought back around $10 billion worth of stock since 2007, and the company plans to buy an additional $5 billion in stock over the next couple of years.
3) Target is not only a great stock for dividend growth, but it also
has capital gains potential. Analysts at Morgan Stanley (MS) have
recently set a $69 price target on the shares, which would provide gains of about 20%. Since this stock is trading near 52 week highs, patient investors should wait for dips to use as buying opportunities in order to maximize long-term gains.
Even though Wal-Mart Stores Inc. (WMT) appears to offer a similarly recession-proof business model, Target seems to have less negative headline risk because Wal-Mart remains mired in an alleged bribery scandal related to store openings in Mexico. For now, investors seem willing to forgive this after selling off the shares earlier this year, but those headlines could come back to the forefront as investigations continue.
Here are some key points for TGT:
Current share price: $61.52
The 52 week range is $45.28 to $62.18
Earnings estimates for 2012: $4.31
Earnings estimates for 2013: $4.85
Annual dividend: $1.44 per share which yields about 2.4%
Here are some key points for WMT:
Current share price: $74.52
The 52 week range is $48.31 to $74.80
Earnings estimates for 2012: $4.91
Earnings estimates for 2013: $5.35
Annual dividend: $1.59 per share which yields about 2.2%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.