Some of the world’s best investors stick to dividend portfolios. They know that a steady stream of income is a top wealth building strategy. And finding the best deals is vital. So today, we’re going to review another one of the best dividend stocks around. Let’s take a look at Target’s dividend history and safety…

Business Overview and Highlights

Target (NYSE: TGT) is a $56 billion business. The company is based out of Minnesota and it employs 360,000 people. Last year Target pulled in $75 billion in sales and that breaks down to $209,000 per employee.

The company runs within the consumer sector and maintains a solid credit rating (A) from the S&P. This allows Target to issue cheap debt to expand operations and pay dividends.

Target’s stock has climbed 60% in 2019 which is much larger than the 20% jump the S&P 500 made this year. The strong U.S. consumer, high earnings, and a partnership with Disney helped boost the share price.

On September 19, Target’s board of directors declared a quarterly dividend of $0.66 per share. The dividend is payable December 10 to shareholders of record at the close of business on November 20. Let’s take a look at Target’s 10-year dividend history…

Target’s 10-Year Dividend History

The company paid investors $0.67 per share a decade ago. Over the last 10 years, the dividend has climbed to $2.54. That’s a 279% increase and you can see the annual changes below…

Target's Annual Dividend

The compound annual growth is 14.3% over 10 years… but over the last year, the dividend climbed 3.3%. The slowdown in dividend growth isn’t a great sign. Although, Target still might be a good income investment. Let’s take a look at the yield…

Current Yield vs. 10-Year Average

Target’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital and we’ll look at that soon.

The dividend yield comes in at 2.42% and that’s below the 10-year average of 3.21%. The chart below shows the dividend yield over the last 10 years…

Target's dividend yield.

The lower yield shows that investors have bid up the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.

Improved Dividend Safety Check

Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So, a payout ratio of 60% would mean that every $1 Target earns, it pays investors $0.60.

The payout ratio is a good indicator of dividend safety… but accountants can manipulate net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.

Here’s Target’s payout ratio based on free cash flow over the last 10 years…

The ratio is volatile over the last 10 years and the trend is up. The last year shows a payout ratio of 54.6%. This gives wiggle room for Target’s board of directors to raise the dividend.

Target’s board of directors also authorized a new $5 billion share repurchase program. The repurchasing is expected to occur in the 2020 fiscal year. The repurchasing program could positively affect Target’s 2020 and 2021 earnings estimates. Target’s dividend could be safe for a long time.

For more information on dividend paying companies, check out our Dividend Stocks page. There is a wealth of information about the latest and greatest in the dividend investing world. Now you know about Target’s, but what about Altria’s dividend