One of the critiques of dividends is investors miss out on massive growth offered by tech. This is not always the case! Furthermore, for every surging tech stock, there are many more that decline or even disappear. Dividend investing focuses on companies with strong cash flow, healthy leverage, and growing (real) profits. As investors make big gains on Tesla, at least dividend investors own companies that actually earn a profit. So, when a correction inevitably takes place, more solid, profitable companies help to mitigate losses. Tesla, for example, is now down 30% from its high earlier this year. In contrast, Target is up 36% year-to-date. I bought Target in 2016 and shortly after purchased Amazon. Both are nearly equal in terms of gains. Below is a chart listing my purchase of Target in 2016 and its years of dividend payments.
In 2016 Target was reeling from a consumer boycott brought on by its transgender bathroom policy. At the same time, Amazon was eating everyone’s lunch. Amazon continues to put smaller retailers out of business with its consumer friendly, pseudo-predatory business practices. Stalwarts like Target and Walmart were struggling to keep up. In the coming years, Target would work to redesign and revamp its stores. They would expand their lines of exclusive brands and invest heavily in ecommerce. The results were excellent. Target’s earnings declined in 2017, falling to $4.71/share. By end fiscal 2021, Target’s earnings will have increased by 85% to $8.70/share. This allowed the company to recently declare a 32% dividend increase!
There was a sharp uptick in 2020 earnings due to the pandemic. Target was considered an essential business and the pandemic seemed to supercharge the ecommerce trend. Consumers had fewer shopping options last year and the investments Target made years before paid off handsomely. Like Disney’s move into streaming, Target’s investment in ecommerce was paramount. They launched a highly successful curbside pickup campaign and pushed customers to utilize its Shipt home delivery service. In the end, the company’s online sales exceeded $16 billion with store pickup and curbside pickup growing 70% and 600% respectively. Target also continued to build customer loyalty and expand its market share. Customer traffic was up 6.5% and the average ticket was up 13%+.
These recent successes allowed the share price to rise to a new all-time high of $240 in 2021. And while they are now a lower yielding company, Target still awarded shareholders with that 32% dividend increase. This company is but one example of a blue-chip dividend champion that offers the growth of big tech. At the same time, they also offer decent current income and more stability. Other examples are Home Depot (HD) and Domino’s Pizza (DPZ). Target also offers my personal portfolio great synergy. Higher yielders like SO, WPC, QYLD, and PM offer current income but slower growth. Target, on the other hand has a yield of 1.5% but a much higher prospect of future growth. These businesses work hand in hand to produce a balanced, diversified portfolio with ever-increasing income.
I am long on TGT, SO, QYLD, WPC, and PM. 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.