Target Corporation (NYSE:TGT) will have an ex-dividend date in the next four days. The ex-dividend date is one day before the record date, which is the date a shareholder must be on the company’s books to receive a dividend. The ex-dividend date is important because in order to receive the dividend, all trades for the stock must have settled before the record date. In other words, investors would need to buy Target shares by August 21st to receive the dividend paid on September 10th.
The company’s upcoming dividend of $1.12 per share comes on the heels of the company distributing $4.48 per share to shareholders over the last 12 months. Based on last year’s payments, Target shares have a historical yield of 3.2% on the current share price of $141.66. Dividends can be a major contributor to investment returns for long term holders, but only if they continue to be paid. We need to see whether the dividend is covered by earnings and if the dividend is growing.
Check out our latest analysis for Target
When a company pays out more in dividends than it earned, the dividend may become unsustainable – hardly an ideal situation. Fortunately, Target’s payout ratio is modest at just 49% of its profits. However, cash flow is more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its dividend. Happily, the company paid out just 44% of its free cash flow in the past year.
It’s encouraging to see that the dividend is covered by both profits and cash flow, as this generally suggests the dividend is sustainable, as long as earnings don’t fall precipitously.
Click here to see the company’s dividend payout ratio, plus analyst estimates of its future dividends.
Historical Dividend
Are profits and dividends increasing?
Companies with growth prospects are usually the best candidates to pay dividends, as it is easier to grow dividends when earnings per share are improving. If earnings fall and the company is forced to cut the dividend, investors could watch the value of their investment disappear. For this reason, it’s good to see Target’s earnings per share have grown at 10% per year over the past five years. Earnings per share have been growing rapidly, and the company has retained a large portion of its profits within the business. Fast-growing companies that reinvest heavily are attractive from a dividend perspective, especially since they are often able to raise the dividend payout ratio later.
Another important way to gauge a company’s dividend prospects is to measure its historical dividend growth rate. Looking at its dividend payment history over the past 10 years, Target has averaged 10% annual dividend growth. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
summary
Is Target worth buying for its dividend? Target is growing its earnings rapidly and has a conservatively low payout ratio, indicating that it is reinvesting heavily in the business. That’s a great combination. There’s a lot about Target that makes it attractive, and we’re making it a priority to take a closer look at it.
So while Target looks good from a dividend perspective, it’s worth staying up to date on the risks associated with this stock.For example, Target has 2 warning signs that we recommend considering before investing in this business.
Generally speaking, we don’t recommend just buying the first dividend stock you see, so here we present a curated list of interesting stocks with high dividends.
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This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell a stock, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned herein.