This Dividend King Is Down 37% But Just Reported Good News. Is It a No-Brainer Buy Right Now?

Why do customers shop at Target (NYSE: TGT)? There are lots of reasons, of course. The retailer operates nearly 2,000 stores in convenient locations across the U.S. It offers a wide range of merchandise under one roof. Target’s stores are bright, clean, and well-organized, making it easy for customers to find what they want.

However, arguably, the biggest reason customers shop at Target is that its prices are reasonable for the quality of the products in its stores. There’s a similar bang-for-the-buck argument for buying Target stock. This Dividend King is down close to 37% from its high set in late 2021 but recently reported good news. Is it a no-brainer buy right now?

Target’s good news

Target’s share price popped 11% higher last week after reporting its 2023 fourth-quarter results. The big story of this Q4 update was that the company posted earnings per share (EPS) that reflected year-over-year growth of nearly 58%.

Even better, Wall Street wasn’t expecting such strong earnings growth. Target’s adjusted EPS of $2.98 was well above the consensus analysts’ estimate of $2.40 and the high end of the company’s guidance range of $1.90 to $2.60. The retailer topped estimates by a double-digit percentage in each quarter of 2023.

Granted, there were some things investors didn’t like about Target’s Q4 update. Revenue in the fourth quarter rose by only 1.7% year over year to $31.9 billion. This increase was driven largely by an extra week in fiscal year 2023.

Target’s guidance was also weak. The company expects comparable sales in the first quarter of 2024 to fall by 3% to 5%. The midpoint of its Q1 EPS outlook reflects a decline from the prior-year period as well.

Where Target hits the bulls-eye

Looking beyond Target’s recent quarterly update, the company arguably hits the bulls-eye for investors in several other ways. Its dividend ranks high on the list.

Target has increased its dividend for 52 consecutive years. Its dividend has grown by an annualized average of 10.7% over the last 10 years — an impressive growth rate. Target’s dividend yield currently tops 2.6%. CFO and COO Michelle Fiddelke stated in the Q4 earnings call that Target plans to “build on” its strong track record of dividend hikes going forward.

Investors can expect Target to reward them in another way, too. Fiddelke said in the Q4 call that stock buybacks “will continue to play a meaningful role in our EPS growth in years ahead.” She hinted that more share repurchases could be on the way later in 2024.

Importantly, Target’s management maintains a long-term perspective. CEO Brian Cornell told analysts in the Q4 call, “Our preference is always to think long-term.” He noted that the company plans to open more than 300 new stores over the next decade and remodel most of its existing stores. Target intends to build at least 10 new supply chain facilities. It’s investing in technology, especially in using artificial intelligence (AI) to gain efficiencies and better serve customers.

Is Target stock a no-brainer buy?

I bought Target stock not long before its Q4 update. It wasn’t a no-brainer buy for me then; I don’t think it is now either.

Growth investors can definitely find other stocks that they’ll like more than Target. Income investors can find stocks with juicier dividends. Value investors can find cheaper stocks. Target, therefore, isn’t a no-brainer stock to buy.

That said, I think it’s a stock that many investors will want to consider. In particular, anyone hoping to retire in the next 10 years or so might do well buying Target shares now. With the company’s history of dividend growth, its stock could be an exceptional source of income by the time you leave the workforce. I suspect that Target will deliver solid growth along the way, too.

Should you invest $1,000 in Target right now?

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Keith Speights has positions in Target. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

This Dividend King Is Down 37% But Just Reported Good News. Is It a No-Brainer Buy Right Now? was originally published by The Motley Fool