Dividend Increase | Target Corporation

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Target for another dividend increase!
There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On June 13th the Board of Directors at Target Corporation (TGT) approved an increase to their quarterly dividend payment.  The dividend was increased from $0.64 up to $0.66.  That works out to a 3.1% raise from the prior dividend payment.  Target has increased their dividend for 47 consecutive years giving them the title of Dividend Champion.  Shares currently yield 3.03% on a forward basis.

Since I own 128.331 shares of Target Corporation in my FI Portfolio this raise increased my forward 12-month dividends by $10.27.  This is the 7th dividend increase I've received from Target since initiating a position in 2012.  Despite the challenges for the retail sector, Target's cumulative dividend growth over that time is 83.3%.  According to US Inflation Calculator the cumulative rate of inflation over that same time is just 11.5%.  

A full screen version of this chart can be found here.

Target has increased their dividend every year since 1972.  That's 47 consecutive years and what's even more impressive is that the pace of growth has regularly been greater than 10%.  Unfortunately, Target, as well as the retail sector in general, has struggled over the last several years which has led to a marked decline Target's dividend growth rate.  This most recent raise is the smallest they've handed out since their streak started nearly 50 years ago.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1972 can be found in the following chart.  

A full screen version of this chart can be found here.

*2019's dividend growth assumes the new quarterly payout of $0.66 per share is maintained for the rest of 2019.

Based on dividend yield theory Target appears to be on the lower end of fair value currently.  One thing to note though is the noticeable increase in Target's "normal" yield range since ~2007/8.  Especially since that's come at a time when investors, in general, have been bidding up anything with yield.  That likely speaks to the struggles, both realized and perceived, facing Target and the retail sector.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

Wrap Up

This raise increased my forward dividends by $10.27 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 2.89% this raise is like I invested an extra $355 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way.  

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

Thus far in 2019 I've received 24 total increases from 22 of the 54 companies in my FI Portfolio.  Combined those increases have raised my forward 12-month dividends by $141.26.

My FI Portfolio's forward-12 month dividends increased to $6,997.40.  Including my FolioFirst portfolio's forward dividends of $100.01 brings my total taxable accounts dividends to $7,097.41.  My Roth IRA's forward 12-month dividends remain at $465.30.

Do you own shares of Target Corporation?  Do you think they can continue with their turnaround?

Please share your thoughts below.