Target Corporation (NYSE:TGT) launched its newest designer collaboration last Sunday and by day’s end, most of the Phillip Lim collection was out of stock online.
Lim’s line seems likely to join Missoni’s 2011 debut in the category of rousing success. On the other side of the divide stands the Neiman Marcus collaboration from holiday 2012. The Neiman offerings included clothing and household items with prices up to $500. That proved too much for the average holiday shopper and Target Corporation (NYSE:TGT) was left admitting that the endeavor “didn’t work.”
Will this holiday season prove more successful for this dividend player?
The tidings weren’t good
The holiday season last year didn’t leave Target Corporation (NYSE:TGT) feeling merry and bright. Fourth-quarter comparable-store sales rose 0.4% compared to a 1% increase at Wal-Mart Stores, Inc. (NYSE:WMT). Sears Holdings Corp (NASDAQ:SHLD)‘ domestic eponymous stores showed a 0.8% increase, though Kmart lagged behind with a 3.7% drop.
It’s not that Target Corporation (NYSE:TGT) did anything particularly wrong; the Neiman line wasn’t driving customers away from the store. The holiday season happened to have fierce pricing competition as retailers tried to woo consumers who were still nervous about spending too much money.
That competition showed early through the layaway and pricing plans. Wal-Mart Stores, Inc. (NYSE:WMT) announced its free layaway program with no down payment in August last year. The store included popular gift segments such as toys and electronics. Sears Holdings Corp (NASDAQ:SHLD) also dropped its layaway fees and included any item in the store. Customers could also layaway items sold online and have the paid-off gift shipped to the house.
Target Corporation (NYSE:TGT)’s big push came through a price-match guarantee that included online retailers. That was a play to keep customers away from Amazon.com, Inc. (NASDAQ:AMZN). Target Corporation (NYSE:TGT) decided to continue this policy after the holidays, which could lead to shrinking margins.
But Target’s pricing and products will have company in this year’s holiday story.
Holiday expansion
Target will open more than 100 stores in Canada before year’s end. The company opened its first store in our northern neighbor this past spring. And this marks the first time Target’s ventured outside of the United States.
The expansion will keep costs high in the short term, but it’s worth the long-term potential. Canada opens up even more opportunities for limited-edition lines. Outdoor-clothing company Roots is already planning an exclusive line at the retailer.
Dividend wrapped in a bow
Target is currently trading at about 16 times earnings, compared to Wal-Mart Stores, Inc. (NYSE:WMT)’s 15x. But that’s still a better deal than Sears Holdings Corp (NASDAQ:SHLD)’ losses and Amazon.com, Inc. (NASDAQ:AMZN)’s forward P/E of 106.
The store falls behind the performance numbers of its competitors. Target is up less than 1% over the past year and up about 9% year to date. Wal-Mart Stores, Inc. (NYSE:WMT) is up 3% for the year and 11% year to date. Sears Holdings Corp (NASDAQ:SHLD) is up 46% year to date and Amazon is up 19%.
Target does pack a nice dividend. The store’s yield is 2.7% — higher than Wal-Mart Stores, Inc. (NYSE:WMT)’s 2.5%. But Wal-Mart Stores, Inc. (NYSE:WMT) wins at payout ratio, or the percentage of net income paid out in dividends. Wal-Mart’s at 43% for the trailing 12 months while Target’s at 35%. That’s unsurprising considering that Target’s still largely in growth mode as it pursues the Canadian expansion. The company has also increased payouts for the past four years while Wal-Mart’s numbers wavered.
Amazon.com, Inc. (NASDAQ:AMZN) doesn’t pay dividends because the money goes back into the company to fuel growth. In Amazon.com, Inc. (NASDAQ:AMZN)’s case, the reinvestment resembles refueling the engine of a sports car mid-race.
Foolish final thoughts
Target might fall short of Wal-Mart again this holiday season. But long-term investors can still look forward to the results of the Canadian expansion. And that dividend would look nice wrapped in a bow under the tree.
The article Will This Dividend Stock Have a Happier Holiday? originally appeared on Fool.com is written by Brandy Betz.
Brandy Betz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com.
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