3 Reasons to Buy Target Stock Like There's No Tomorrow

Target (NYSE: TGT) is one of the leading retailers in the United States, often looked at as a more upscale Walmart. While that's a pretty good description of the business, it isn't the best comparison today because Walmart's business is doing fairly well while Target's stores aren't. But for contrarian investors, there are still some strong reasons to buy Target stock while it looks like it's on sale.

1. Target has a historically high yield

For many investors, the big reason to like Target today is its 4.5% dividend yield. That's near the highest levels in the company's history. This suggests that Target shares are on sale.

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Image source: Getty Images.

That view is strongly backed by more traditional valuation metrics. For example, the price-to-sales ratio is currently around 0.4 times versus a five-year average of 0.7 times. The price-to-earnings ratio is roughly 11 times compared to a longer-term average of about 17.5 times. The company's price-to-book value and price-to-cash flow ratios follow the same trend.

Basically, the first reason to like Target today is that the stock price appears historically cheap.

2. Target is a Dividend King

Target's stock price has plunged by more than 50% from its 2021 highs. That's a massive decline, but it isn't the first time that the retailer's shares have seen a drawdown like that. And the retailer has managed to crawl out of each of those previous downturns.

TGT data by YCharts

What's notable, particularly for dividend investors, is that Target has continued to grow its dividend through the downturns. At this point, the dividend has been increased for a huge 58 consecutive years. That makes Target a Dividend King, a member of a highly elite group of companies. The big story here, however, is that a company can't create that kind of dividend streak by accident. It requires a strong business plan that gets executed well in good times and bad. This is a bad time for Target, which saw a sales drop in the first quarter of 2025 even as competitor Walmart managed to grow its sales.

If history is any guide, though, Target will muddle through this rough patch in relative stride.

3. Target is taking steps to get back on track

The big news from Target is that it's going to deal with the current headwinds facing the business with, essentially, a corporate shake up. The company's chief strategy and growth officer has left the company and a new group called the "enterprise acceleration office" has been created.

The new team approach will consider ways to "improve how functions work together to advance key priorities, ranging from simplifying cross-company processes to using technology and data in new ways to power the team." You could dig into that, but the big picture is that the old way wasn't working so Target is trying something new. That's exactly what long-term dividend investors would expect, and want, management to do. This is because it speaks to a business that recognizes when there are problems that need to be addressed and, most important, it is taking steps to address them.

Getting paid well to wait

Retailers tend to go in and out of favor over time because consumers are fickle. This isn't the first time that this has happened to Target and it probably won't be the last. If history is any guide, management will figure out a way to increase its relevance with customers, muddling through to better days. To be fair, a recovery here could be a multiyear process, which might turn some investors off. But the big draw, and the reason to buy now, is that you can collect that historically high yield while you wait for a business upturn.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target and Walmart. The Motley Fool has a disclosure policy.