Target Corporation (TGT): An Attractively Valued Dividend Champion On Sale

Currently, Target is cheap at 13.70 times forward earnings and yields 4.30%. I took advantage of the drop last week in order to add a little to my position in this retailer. I believe that the press release didn’t seem to warrant such a large decline in the share price. This was definitely driven by the animal spirits of fear, which is something I want to take advantage of. On the other hand, it is possible that the stock price goes down from here. This is why I try to buy a little on the way down, in order to reduce the impact of errors in case I am wrong in my assessment. As an investor, my goal is to reduce the impact of errors in trying to catch a falling knife. This is how I managed to accumulate a position in 2014, when the company was rocked by scandals.

I grew concerned that Target Corporation (NYSE:TGT)’s net income was flat, which is why I sold a large portion of my stock in 2015 and another block last summer. Given the lack of earnings growth, the only reason to buy is as a play on the market overreaction to bad news. Otherwise, I view Target as a long-term hold, but I would not be adding more if I were a long-term investor. This is because without growth in earnings per share, we won’t be able to enjoy much in terms of dividend growth and growth in intrinsic value. That being said, even if earnings were flat for the next decade, a 4% yield and attractive valuation today may generate a return that would be comparable to that of the broader market during that time frame.

Full Disclosure: Long TGT and WMT

Additional Links:

(1) http://www.dividendgrowthinvestor.com/2015/10/should-i-buy-wal-mart-stock-at-current.html

(2) http://www.dividendgrowthinvestor.com/2010/05/why-dividend-growth-stocks-rock.html

(3) http://www.dividendgrowthinvestor.com/2016/06/how-to-select-winning-retail-stocks.html