This Dividend King Yielding 3X the S&P 500 Looks Like a Buy Right Now.
Key Points
Target has increased its dividend for 55 consecutive years and currently yields about 3%.
Advertising, memberships, and its online marketplace are growing much faster than store sales and support management's plan to restore margins.
In addition to a high yield, the stock trades at a reasonable valuation that could support further upside.
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Target (NYSE: TGT) has raised its dividend for 55 consecutive years, qualifying it as one of the elite Dividend Kings -- companies that have increased their payouts for at least 50 years in a row. The stock currently yields about 3%, based on its quarterly dividend of $1.16 per share. That is roughly 3 times the S&P 500's yield of approximately 1%, making the shares more appealing as the business turns the corner.
Sales are improving, helped by growth in advertising revenue and Target Circle 360 memberships. The core retail business is also showing better traffic and conversion. Comparable sales swung from a 2.5% decline in the holiday quarter to growth in each of the first two quarters of 2026, led by stronger store traffic.
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The bigger opportunity is non-retail sales. In the quarter ended Aug. 1, advertising revenue, powered by the Roundel media network, rose 20%. Revenue from Target Circle 360 memberships and sales on the Target Plus online marketplace each grew more than 40% year over year. Management says these businesses grow profits faster than sales, which points to higher margins and earnings.
These profitable revenue streams support the dividend. Target is already paying out less than half of its trailing earnings per share, and management's long-term goal is to keep the payout ratio near 40%. This leaves plenty of room to keep increasing the dividend during a year when a slow economy could weigh on sales and earnings.
The stock remains attractively valued. Shares trade at about 15 times this year's expected earnings, below the S&P 500's roughly 19 times. Investors can lock in an above-average dividend yield while positioning themselves to potentially profit from further upside in the shares, as the turnaround continues.
Should you buy stock in Target right now?
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.
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