We recently published a list of 15 Best Dividend Stocks To Buy and Hold. In this article, we are going to take a look at where Target Corporation (NYSE:TGT) stands against other best dividend stocks to buy and hold.
In recent years, many investors have shifted their focus from dividend-paying stocks to high-growth secular-themed stocks that typically don’t offer dividends. However, history shows that investors shouldn’t overlook dividends. According to estimates by AGF Investments, the long-term case for dividend-paying equities is strong: if a dollar was invested in the broader market Index in 1927 without reinvesting dividends, it would be worth $243 today. In contrast, that same dollar with dividends reinvested would be worth $3,737.
Because of this earnings and income potential, income investors often turn to dividend stocks when the market shifts. While these stocks may not be keeping pace with the broader market, analysts remain optimistic about their future prospects. A report from J.P. Morgan indicated that global equities are approaching a notable period of dividend growth, not just due to a cyclical rise in payouts but also because of a long-term increase in dividend momentum. Over the past 20 years, global dividends per share have grown at an annual rate of 5.6%, but analysts predict this growth will accelerate to 7.6%. The main factor driving this increased growth is the low starting point of payout ratios (dividends as a proportion of earnings). During the Covid pandemic in 2020, many companies cut their dividends, leading to a 12% drop in global dividends, which was a steeper decline than during the Global Financial Crisis. This was a rational response to an uncertain environment with unpredictable effects and duration.
READ ALSO: 10 Most Promising Dividend Stocks According to Hedge Funds
However, equity markets rebounded strongly as global earnings soared, primarily driven by Big Tech and, more recently, AI. Since dividends are typically determined by conservative boards and management, they tend to lag behind earnings during significant earnings surges. As a result, dividend payout ratios are now near their lowest levels in 25 years, meaning companies are paying out less compared to historical averages. Simply returning to a more typical payout level could contribute an additional 2% annual growth over the next five years. This isn’t just a theoretical scenario—global dividend growth has already started to exceed earnings growth in seven of the past eight quarters, as reported by J.P. Morgan.
While recent market gains have largely been driven by a small group of non-dividend-paying companies, this is starting to shift. In 2024, many big tech companies initiated their dividend policies, highlighting the importance of returning capital to shareholders and positioning dividends as a complement to share buybacks. The report highlighted that although the dividend yields from these tech giants are initially modest, the total amount they are committing to dividends is significant—$17 billion collectively over the next year. More importantly, these actions send a strong signal to the market.
Income-focused investors have increasingly turned their attention to dividend income, making it a more prominent part of personal earnings. A report by S&P Dow Jones Indices reveals that dividend income has risen from 2.68% in Q4 1980 to 7.88% in Q2 2024, demonstrating its growing importance as an income source. The report further highlighted that since 1936, dividends have accounted for over a third of total equity returns, with the rest coming from capital gains. Given this, we will take a look at some of the best dividend stocks to buy and hold.
Our Methodology
For this list, we scanned through various credible sources, including Business Insider, Forbes, Morningstar, and Barron’s, and identified their consensus picks from their recent articles. Next, we sorted these companies based on the number of hedge funds in Insider Monkey’s database that owned stakes in these companies, as of Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A woman purchasing groceries at a Target store, with a cart full of products.
Target Corporation (NYSE:TGT)
Number of Hedge Fund Holders: 49
Target Corporation (NYSE:TGT) is a Minnesota-based retail corporation that operates a chain of hypermarkets and discount department stores. The company has shown consistent growth in operating income over the past year while maintaining a strong financial position. Although its debt levels are on the higher side, its cash, cash equivalents, and short-term investments are adequate to meet near-term obligations. The company’s increasing cash reserves and an interest coverage ratio of 11.6 further strengthen its financial stability. Its liquidity is supported by a clean balance sheet with no intangible assets and a solid return on invested capital (ROIC) of 11.5%.
Target Corporation (NYSE:TGT) is a strong dividend payer with solid balance sheet. In the first nine months of 2024, the company reported an operating cash flow of $4.07 billion. It ended the quarter with $3.4 billion in cash and cash equivalents. This cash position enabled the company to return $516 million to shareholders through dividends. It currently pays a quarterly dividend of $1.12 per share and has a dividend yield of 3.31%, as of February 4. It is one of the best dividend stocks on our list as the company has been rewarding shareholders with growing dividends for 53 consecutive years.
As per Insider Monkey’s database of Q3 2024, 49 hedge funds held stakes in Target Corporation (NYSE:TGT), compared with 52 in the previous quarter. The total value of these stakes is more than $1.4 billion.
Overall, TGT ranks 11th on our list of best dividend stocks to buy and hold. While we acknowledge the potential for TGT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TGT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.