When analyzing a stock’s potential, several factors need a closer look, including the total return (price appreciation and dividends). Total return can offer insights about a company’s prospects and long-term earnings growth potential. It also comes into play when it’s clear that a stock is lagging the overall market at a given moment.
The S&P 500 is up over 27% this year (through Dec. 6). However, that doesn’t mean all its index components followed suit. Two S&P 500 components, Target (NYSE: TGT) and Lowe’s (NYSE: LOW), have lagged the market by varying degrees so far in 2024.
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While these two companies have had short-term hiccups in 2024, their long-term prospects still appear bright. As a result, this looks like an opportune time for investors to take a chance and buy shares of these two Dividend Kings.
Target made strides in 2024 in correcting an inventory imbalance caused by stocking up on too many discretionary spending items. What it couldn’t account for was some recent sluggish quarterly sales. Target’s fiscal third-quarter same-store sales (comps) increased 0.3% for the period that ended on Nov. 2. Positively, traffic to its stores and website was robust, responsible for a 2.4-percentage-point gain, but spending per visit subtracted 2 percentage points.
The weak comps appear to be due to a stretched consumer. Comps for everyday items like beauty, food, beverage, and household essentials had single-digit percentage increases. Discretionary categories like apparel and home furnishings appear to have dragged down sales. However, that’s likely due to weary customers being stretched thin by higher prices for basic items. As these pressures ease, they should spend more on these items, and Target will undoubtedly benefit.
Meanwhile, the market reacted negatively to the recent quarterly results. Target’s stock price is down 7% since the start of the year (through Dec. 6).
Fortunately, shareholders will continue to collect dividends while waiting for economic conditions to improve. Fortunately, Target has a deep commitment to making payments, as evidenced by its track record. The company has made a regular quarterly payout since its initial dividend in 1967, and has raised payouts annually for 53 straight years. That includes about a 2% increase, to $1.12 a share, starting in September.
Target can also afford the dividend and afford to keep raising it as its payout ratio is 47%. With the stock price down at the moment, the dividend yield is up to 3.4%, compared to the S&P 500’s average of 1.2%.
