Will Target's Dividend Hike Provide Cushion To The Stock? - Analyst Blog

Target Corporation TGT, the operator of general merchandise and food discount stores, revealed its plan to utilize its free cash to boost shareholders' return by announcing a dividend hike.

Minneapolis, MN-based Target raised its annual dividend by 20.9% to $2.08 (or 52 cents quarterly) from $1.72 per share (or 43 cents quarterly). The company announced that the increased dividend will be paid on Sep 10 to stockholders of record as on Aug 20. This marks the 188th successive dividend payment for the company ever since it went public in Oct 1967.

However, the news did not provide much impetus to the stock, as Target's share price inched up 0.4% or 22 cents to close at $57.08 yesterday. The dividend yield based on the new payout and the last closing market price is 3.6%.

Target, an S&P 500 company, last hiked its annual dividend to $1.72 from $1.44 per share in Jun 2013, reflecting an increase of 19.4%.

Dividend hikes not only enhance shareholders' return but raise the market value of the stock. Through this strategy, companies bolster investor confidence in the stock, thereby persuading them to either buy or hold the scrip instead of selling it. Looking ahead, the company remains confident of its growth potential, suggesting enhanced value for shareholders.

Although Target's dividend hike is a regular feature, it may be considered to be part of a strategy to provide cushion to the stock that was hurt by a massive data breach. This Zacks Rank #5 (Strong Sell) company faced its worst security infringement ever last holiday season, when information related to credit and debit card data of approximately 70 million customers was hacked.

Apart from the security infringement, the company's tepid foray into the Canadian market, weak e-commerce sales and subsequent dismal quarterly performances have set Target back. Moreover, the breach has shaken consumer confidence, resulting in lesser footfall and a public relations nightmare for the company.

Other Stocks worth Mentioning

Other better-ranked stocks worth considering in the retail sector include The Hain Celestial Group, Inc. HAIN, The Kroger Co. KR and B&G Foods Inc. BGS all holding a Zacks Rank #2 (Buy).

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