All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Target in Focus
Based in Minneapolis, Target (TGT) is in the Retail-Wholesale sector, and so far this year, shares have seen a price change of 31.05%. The retailer is paying out a dividend of $0.64 per share at the moment, with a dividend yield of 2.96% compared to the Retail - Discount Stores industry's yield of 0.95% and the S&P 500's yield of 1.91%.
Looking at dividend growth, the company's current annualized dividend of $2.56 is up 1.6% from last year. Target has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 7.44%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Target's current payout ratio is 46%. This means it paid out 46% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, TGT expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $5.92 per share, which represents a year-over-year growth rate of 9.83%.
Bottom Line
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that TGT is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
Target Corporation (NYSE:TGT
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