The Dividend Aristocrats are among the highest-quality dividend growth stocks in the entire stock market. There are just over 50 Dividend Aristocrats, an exclusive list of companies in the S&P 500 Index that have raised their dividends for at least 25 years in a row.
Target (TGT) has increased its dividend each year for the past 47 consecutive years. But as a retailer, Target has faced heightened competition from e-commerce retailers such as Amazon (AMZN) in recent years.
Fortunately, Target is executing on its key growth strategies, particularly its own digital platform and store renovations. These investments will help Target continue its dividend growth streak in 2019.
Turnaround Is Right On Target
It is no secret that Amazon and other e-commerce retailers have taken a lot of business from brick-and-mortar retailers. As consumers increasingly shop online, a trend that shows no signs of slowing down, foot traffic in physical stores and malls has dropped. This has forced traditional retailers to adapt, and while this has required heavy investment, Target’s investments are paying off.
On November 20th Target posted a very strong quarter. Comparable sales, which measures sales at stores open at least one year, increased 5.1%, a very healthy growth rate. The increase was due in large part to Target’s booming digital business, which grew sales by 49% for the quarter. Target’s adjusted EPS increased 20% for the quarter.
Target continues to open new stores, with a heavy focus on small stores. These small-format locations are designed to provide Target with exposure to dense urban settings and college campuses, where it previously did not reach. New stores contributed more than 0.5% to the company’s third-quarter sales growth.
In addition, store renovations are helping to grow traffic once again. Target expects to complete over 600 store renovations over the next two years. And, Target continues to expand its fulfillment options. The company has also rolled out drive-up and delivery service. Target now offers same-day delivery to nearly two-thirds of all U.S. households.
Count On A Dividend Increase In 2019
While Target made progress advancing its growth strategies in 2018, the turnaround remains ongoing. Fortunately, Target is highly profitable, and should generate more than enough cash flow to invest in its growth initiatives and also raise its dividend in 2019. The company has an expected dividend payout ratio of 47% for 2018, which leaves room for another increase in the upcoming year.
The U.S. economy continues to grow, and consumer confidence remains high. Broadly, this bodes well for retailers like Target.
Barring a major unexpected event or deep global recession in 2019, Target should have little trouble maintaining its impressive streak of annual dividend increases. The company might once again pass on a relatively modest dividend raise, as it has done in recent years.
In 2018, Target increased its dividend by 3%, and a similar low-single-digit increase might be in store for 2019. The priority for Target’s excess cash flow continues to be store renovations and building its e-commerce business. But it is still highly likely that Target will raise its dividend in 2019.
Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.