In September 2016 I acquired Target’s stock in the upper 60s. This was shortly after the company went “political” and sparked a boycott from conservative groups. In addition, the company was facing stiff competition from Amazon and other retailers were failing everywhere. I watched the stock fall into the lower 50s. As it collapsed further, I reinvested the dividends. Even so, Target was probably the only dividend stock I ever considered selling. After all, they were becoming irrelevant. The 4% dividend yield, at the time, was simply not enough. Thankfully, I opted to hedge my Target position with a small investment in Amazon and never sold. Today Target trades at $125.
While store chains like JCP, Macy’s, Kohls, and Toys R’ Us continue to fail Target appears to be picking up the pieces. Earnings came in at $1.36/share beating the $1.19 consensus estimate. Revenue also grew better than expected at $18.67 billion. Same store sales ticked up 4.5% and the company revised its guidance upwards ($6.25-$6.45). So essentially, Target is beating estimates and expects the streak to continue! This sent the stock up 14% in one trading day. The company’s successes stem from its investment in stores. New updated designs and numerous exclusive brands drove in store traffic higher by YOY by 3.1%. Target also experienced 31% growth in digital sales.
When shopping at Target you can feel why the company is still relevant. For instance, last time I shopped at JCP it took me 30 minutes to find the one item I needed and another 30 minutes just to check out. The store was disorganized and there was absolutely no staff. Macy’s is a bit better but focuses more on fashion trends than the staples Target sells. Even Walmart, Target’s biggest competitor, is notorious for its lackluster employees and less than desirable clientele. Target stores are clean, better staffed, and the merchandise is more up to date. The company appeals more to the Millennial generation; a generation who will soon control the majority of purchasing power.
Target is a perfect example of buying a company out of favor on sale. One purchases a seemingly falling knife only to watch it double in value a few years later. This is characteristic of many dividend growth stocks. All of them run into trouble somewhere down the line. The difference is dividend aristocrats have better track records of navigating treacherous waters. They’ve had to reinvent themselves over the decades as technologies advanced and consumers changed. Other recent examples include P&G investing in niche startup brands and Apple becoming more of a “services” company. These fantastic companies serve as examples why we need to stay true to our convictions and avoid selling out of fear.
DISCLAIMER: I am long on TGT, AAPL, and PG. I am not a licensed investment adviser or tax professional. I am not liable for any losses incurred by any parties. This blog should be viewed for entertainment and/or educational purposes only. Any transactions published are not recommendations to buy or sell any securities. Please consult with an investment professional before making investment decisions.