When analyzing a stock’s potential, several factors need to be considered, including total returns (price appreciation and dividends). Total return can provide insight into a company’s prospects and long-term earnings growth potential. It also comes into play when it is clear that a stock is lagging the overall market at a certain point in time.
The S&P500 has risen more than 27% this year (until December 6). However, that does not mean that all index components followed suit. Two S&P 500 components, Goal (NYSE: TGT) And Lowe’s (NYSE: LOW)have lagged the market to varying degrees so far in 2024.
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Although these two companies have had short-term problems in 2024, their long-term prospects still seem bright. As a result, this seems like an opportune time for investors to take a chance and buy shares of these two Dividend Kings.
Target has made progress in correcting an inventory imbalance in 2024 caused by stocking up on too many discretionary spending items. What it couldn’t explain was some recent slow quarterly sales. Target’s fiscal third-quarter comparable store sales (comps) rose 0.3% for the period ended Nov. 2. On the plus side, traffic to its stores and website was robust, accounting for a gain of 2.4 percentage points, but spending per visit deducted 2 percentage points.
The weak comps appear to be due to a tense consumer. Compensations for everyday items such as beauty, food, drink and household essentials saw a single-digit percentage increase. Discretionary categories such as clothing and home furnishings appear to have depressed sales. However, that’s likely because weary customers are being squeezed by higher prices for basic items. As this pressure subsides, 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 beginning of the year (through December 6).
Fortunately, shareholders will continue to collect dividends while they wait for economic conditions to improve. Fortunately, Target has a deep commitment to making payments, as evidenced by its track record. The company has made regular quarterly payouts since its initial dividend in 1967 and has increased payouts annually for 53 consecutive years. That includes an increase of about 2%, to $1.12 per share, from September.
Target can also pay the dividend and afford to keep increasing it, since its payout ratio is 47%. With the stock price currently down, the dividend yield is up to 3.4%, compared to the S&P 500’s average of 1.2%.
