Target Stock – Q1 2019 Dividend Safety Update

Target Stock - Q1 2019 Dividend Safety Update



on May 22nd 2019 Target Corporation reported first quarter results for the period ending April 30th 2019 this this video provides an update on the company's dividend safety using its most recent operating results before we begin I invite you to subscribe to this channel and like this video which will help more people discover sure dividends investor education efforts with that out of the way let's dig into target's dividend safety to begin let's talk about targets business model target is one of the largest retailers in the United States the company was founded in 1902 and today its business consists of eighteen hundred and fifty discount stores which offer both general merchandise and food target has a market capitalization of forty four billion dollars with annual revenues in excess of seventy five billion dollars target is one of the world's most popular dividend growth stocks the company's current dividend yield is nearly three percent more over target is a consistent dividend grower in fact the company has increased its annual dividend payment for 51 consecutive years because of this target qualifies to be a member of the dividend aristocrats an exclusive group of dividend stocks with more than 25 years of consecutive dividend increases target is also a member of the dividend kings and even more exclusive group of stocks with 50 plus years of dividend increases looking ahead investors interested in owning target stock will likely be interested in the safety of the company's dividend payment for the remainder of this video we will discuss target's dividend safety from four perspectives its dividend safety in the context of its current earnings its dividend safety in the context of its current free cash flow its dividend safety in the context of its recession performance and its dividend safety in the context of its current debt load first let's discuss target's dividend safety in the context of the company's current earnings in the first quarter of fiscal 2019 target generated adjusted earnings per share of one dollar and 53 cents which compared quite favorably to the one dollar and thirty two cents of adjusted earnings per share in the same period a year ago for context target currently pays a quarterly dividend of sixty-four cents per share which implies a pay ratio of 48 percent in the most recent quarter looking out over a longer time horizon our conclusion is the target generated five dollars and thirty nine cents of adjusted earnings per share in fiscal 2018 the company distributed two dollars and fifty two cents of common share dividends during the same time period for a dividend payout ratio of forty seven percent in the full fiscal year using earnings targets dividend appears very safe for the foreseeable future many analysts believe that comparing a company's dividend payments to its free cash flow is a better method for assessing dividend safety with that in mind we will now compare targets current dividend payment to its free cash flow target generated three hundred and twenty three million dollars of cash flow from operating activities in the first quarter of fiscal 2019 and spent six hundred and fifty five million dollars on capital expenditures during the same time period for a free cash flow of negative three hundred and thirty two million dollars the company distributed three hundred and thirty million dollars of common share dividends during the same time period target's dividend was not covered by free cash flow during the first quarter of fiscal 2019 however looking out over a longer time horizon the pea ratio is much lower target generated six billion dollars of cash flow from operating activities in fiscal 2018 and spent 3.5 billion dollars on capital expenditures for free cash flow of 2.5 billion dollars the company distributed 1.3 billion dollars of common share dividends during the same time period for a free cash flow dividend payout ratio of 52 percent using free cash flow for the first quarter targets dividend looks at risk of a dividend cut over a longer time period however the dividend appears to be very safe investors are encouraged to monitor this situation closely moving forward companies do not cut their dividends in the good times instead dividends are reduced when companies experience financial difficulties accordingly this section will analyze target's current dividend safety in the context of the company's historical recession performance we believe it the best way to measure a company's recession resiliency is by assessing its earnings per share performance during the financial crisis that occurred between 2007 and 2009 targets performance during this time period is shown here despite a decline in 2008 targets adjusted earnings per share declined less than 1 percent during the last recession the company was able to produce a high for adjusted earnings per share in 2010 more importantly though the company's earnings still covered its dividend payment and target continued its multi-decade streak of dividend increase because of this we have little concerns about the company's ability to pay rising dividends during future economic downturns the last angle that we will use to assess targets current dividend safety is by looking at the company's current debt level more specifically we will see how much the company's weighted average interest rate would have to increase before its free cash flow would no longer cover its dividend payment at the end of the first quarter of fiscal 2019 target had fourteen point six billion dollars of total debt outstanding the company generated one hundred and twenty six million dollars in interest expense in the most recent quarter for a weighted average interest rate of 3.5% normally we include an interest rate stress test in these analyses that shows how much targets weighted average interest rate would have to increase before its dividend would no longer be covered by free cash flow unfortunately targets dividend is already not covered by free cash flow so we have excluded the stress test from this video we reiterate that investors should monitor this trend closely moving forward thank you for watching today's video which perform a deep dive on targets current dividend safety we invite you to subscribe to this channel and like this video which will help more people discover sure dividends investor education efforts if you are interested in learning more about our systematic approach to dividend growth investing visit our website at

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3 thoughts on “Target Stock – Q1 2019 Dividend Safety Update

  1. If you enjoyed this video, please take a moment to SUBSCRIBE to this channel, which will help more people discover Sure Dividend's investor education efforts! Thanks in advance, and happy investing everyone!

  2. Thanks for sharing. I have not looked deeper into Target, but my hunch is they had some large CapEx. these past couple quarters.

  3. Note that for metrics other than interest coverage, you also look at annual data. I think that if you did this for Target (and Exxon), you’d see that they have some room for increased interest rates.

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