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

One risk that might or might not be overblown is the competition from the likes of Amazon.com, Inc. (NASDAQ:AMZN). When you have a competitor that purposefully sells at cost, and customers do not pay sales taxes at that competitors in most states, you are at a disadvantage. That being said, it is highly unlikely that retailers like Target will be driven away from online competitors. I know that it is very fashionable to forecast the demise of the traditional brick and mortar retailer today. I do not subscribe to the popular opinion of the day. It is very likely that Target would keep expanding its online presence, and offer something to consumers a service which Amazon.com, Inc. (NASDAQ:AMZN) does not offer today – the online to store shipment method. I also believe that not everything is worth purchasing online, nor are online sales a good venue to do convenience shopping. When a customer gets to a store for one thing at a physical location, they are very likely to buy something else on their journey throughout the store. It makes sense to purchase items right away, rather than wait for days or weeks for them to arrive. Some items are much better to personally try and touch, rather than have someone else deliver them for you. The value of repeatability and those customers who do their weekly/monthly visits to the Target stores is very powerful force for Target as well. That being said, Target can surely expand its online presence, which would actually be good for the business overall.

Target is targeting more affluent consumers with its upscale stores. Its customer base is somewhat different than that of competitor Wal-Mart Stores, Inc. (NYSE:WMT). Many of Target’s customers enjoy shopping there, and are attracted by the appeal of offerings and overall atmosphere within the stores. Target’s stores are generally more appealing than those of Wal-Mart, and are cleaner. In addition, Target manages to retain shoppers with its RedCard. Shoppers who use the Target Card get a discount, but also tend to spend more than the average purchaser. In addition, the company has been able to drive more traffic with sales of grocery/food items.

What is the competitive advantage of Target? I believe that the company offers a unique shopping experience that competitors like Wal-Mart do not offer. I also believe that Target looks for a certain type of consumer, who does not like the assortment of goods and the experience that Wal-Mart Stores, Inc. (NYSE:WMT) provides, yet still wants to get a bargain. The company has been able to offer fashion chic items, which draw the specific type of shopper they target. The company also offers convenient locations for shoppers, who come to Target for its quality merchandise. I believe that shares could deliver a very good return to investors who are willing to weather near-term turbulence at the company.

The annual dividend payment has increased by 21.80% per year over the past decade, which is much higher than the growth in EPS. This was achieved mainly because the company decided to pay a higher portion of earnings to shareholders in the form of dividends. Future growth in dividends will be much lower than that however, and will be limited by the growth in earnings per share in the future.

A 20% growth in distributions translates into the dividend payment doubling every three and a half years on average. If we check the dividend history, going as far back as 1986, we could see that Target has managed to double dividends almost every six years on average.