Love Dividends? Then Buy This Innovative Consumer Stock
April 19, 2022
Anyone who’s ever invested for dividends knows that a passive income stream bestows many benefits on its recipients.
That’s because dividends contribute towards the total return of a company – a much more important gauge of a stock’s performance over the long term rather than purely just focusing on share price appreciation.
And as I’ve written about before, the pace of growth of the dividend is a much more important factor in picking the best dividend stocks. That’s true whether you’re investing in Singapore or overseas.
So, with stock markets on edge amid the war in Ukraine, decades-high inflation, and impending interest rate hikes, companies that have solid fundamentals and pay out consistent dividends are now back in vogue.
With that, here’s one innovative consumer discretionary stock in the US that dividend investors should think about buying for their income portfolio.
Competing with the likes of Amazon
While Target Corporation (NYSE: TGT) might not be a household name for many of us in Singapore, it’s one of the top consumer-facing names in the world’s largest economy.
The “big-box” retailer that’s headquartered in Minnesota is a US$110 billion market cap company that offers up anything and everything to consumers as a general merchandise retailer.
In fact, around 75% of the US population lives within 10 miles of a Target store, highlighting its ubiquity as a brand name.
Competing head on with the online retail giant Amazon.com Inc (NASDAQ: AMZN) has not been easy for Target but, as anyone knows, competition tends to make incumbents even stronger.
In fact, over the past five years Target shares have delivered a positive total return of 340%, outperforming Amazon (+270%) during the same time period.
The numbers certainly bear this out for investors. Target has made solid progress during the Covid-19 pandemic as its investments in fulfillment and its curbside pick-up service bore fruit during lockdowns.
Target saw revenue surpass US$106 billion in the whole of 2021, up 13.3% year-on-year and up around 35% from its 2019 figure.
The company’s investments in in-store pop-ups, with retailers such as Ulta Beauty Inc (NASDAQ: ULTA), have only added to the appeal of Target stores.
Its “omnichannel” approach to retail (whereby consumers can order and pick-up in store) has also seen it rank as one of the biggest e-commerce players in the US (see below).
Dividend King continues to grow its payout
All this continued success has obviously rewarded shareholders who love to have that growing dividend.
Target is actually in rarified air – a member of the “Dividend Kings”, companies that have paid out rising dividends for 50 consecutive years.
From 2011 to 2021, Target managed to grow its dividend per share (DPS) at a solid compound annual growth rate (CAGR) of 11.1%.
If investors had bought shares of Target back in 2013 (at around US$62 then), they would be sitting on shares with a “yield on cost” of around 5.8%.
Today, Target shares are close to US$240 a pop and have held up extremely well in 2022, rising around 3.2% versus the close to 9% decline for the S&P 500 Index so far this year.
One dividend that’s set to keep rising
One of the best things about dividend stocks is that they should create passive income well into the future.
With Target stock, investors certainly have a company that has changed with the times while also keeping up its incredible track record of dividend increases.
Having increased its dividend by a whopping 32% in the middle of last year, investors who want passive income should look no further than this retail expert.
Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips owns shares of Target Corporation.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.
In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.