Target stock (NYSE:TGT) has been in free fall this year as the company battles with the consequences of inflation and a significant inventory adjustment to reposition shops for what customers want right now.
Following yet another market sell-off, Target stock (NYSE:TGT) is now down 33% year to date as we enter the crucial fourth-quarter shopping season.
Choose Target Stock
Despite how bad things have been, Target stock seems to be an outstanding dividend stock to purchase right now. This is why.
- A Consistent Dividend Growth Narrative in Good and Bad Times
Target has taken a beating this year. Stores had to swing to meet current demand as inflation grew significantly and customers changed their buying patterns to cope. Target chose a “rip the Band-Aid off quickly” approach to inventory changes, but the outcome was an operating profit margin of only 1.2% in Q2 2022, compared to 9.8% the previous year (more on that in a moment).
Target is a Dividend Aristocrat (a firm that has paid a dividend for at least 25 years) that has continuously increased its dividend distribution over the last half-century. Shares are now yielding 2.8% per year.
- Profits are on Their Way Up.
Returning to Target’s inventory adjustment. Target found itself with surplus merchandise, especially home goods, as inflation soared and shoppers began spending more on food and necessities. Management canceled orders and lowered pricing to eliminate the surplus and focus on the essentials that its customers want right now.
It was a difficult choice, but Target’s senior executives said it was correct. Following a 1.2% operating margin in the second quarter, the objective is to attain an operating margin of roughly 6% in the fourth quarter this year before lapping some cost headwinds from 2021 in the last quarter. What a speedy turnaround!
While Target’s profitability does not seem strong during the first half of 2022, a return in the next quarters might help the stock follow suit.
- A Smooth Transition to an e-Commerce Venture
Target isn’t the only store currently working hard to keep customers interested. Even e-commerce behemoth Amazon (AMZN -0.07%) saw its online selling empire come to a standstill. Target will have to compete with Amazon and others to keep the customer loyalty it has gained in previous years.
However, so far, so good for Target. In the spring quarter, declining profits were the focus, but visitor traffic was an unnoticed benefit. In fact, in-store comparable sales increased 1.3% in the second quarter, while digital comparable sales increased by 9%. This is the company’s 21st straight quarter of similar positive sales, fueled in part by its efforts to improve its expertise in same-day delivery and pickup services that customers seek in this age of digital shopping.
It may take many quarters for Target stock (NYSE:TGT) revitalization to be reflected in this value. If the firm does make a return this autumn, the market may reward Targe stock on the upside. Don’t forget about the dividend you’ll earn along the road.
Featured Image- Megapixl @ Lester69