- Target is weathering an earnings slump.
- Retailers should expect strong earnings, but they may not be profitable.
- Dividend investors may still find the company’s dividend attractive.
Long before the term “earnings slump” became part of the financial news conversation, Target (New York Stock Exchange: TGT) It announced a decline in profits. Sure enough, Target confirmed what many investors had suspected when the company filed its May earnings report. Earnings were affected as the company continued to deal with the impact of inflation.
TGT’s stock price fell about 25% to $160 per share. TGT’s stock price is down to about $!60, even though the stock has risen to about $!74.
That’s not surprising. Retail spending is slowing as consumers put the brakes on discretionary spending. Since Target issued the earnings warning, Walmart (New York Stock Exchange: WMT) Investors have also been warned.
But the question investors are trying to understand is whether the target is a good stock to hold during this market downturn. This article describes the case of owning TGT shares.
Target investors want a soft landing
Another term that is creeping into investor psychology is the idea of a soft landing for the economy. It is believed that the economy, largely due to consumers, can absorb higher interest rates without sending the economy into recession.
Here I need to turn around (pun intended) and say that many investors and consumers already think the economy is in recession. But this is an ongoing conversation.
I’m throwing out investment clichés, but many investors have been warned not to fight the Fed. But I tend to follow another and that is not to underestimate the American consumer.
In this case, I do not mean that consumers will continue spending into oblivion. The use of credit cards for everyday purchases is increasing.
No, what I’m saying is that consumers have a way of keeping inflation in check long before higher interest rates seep into the economy. Many consumers had already adjusted their budgets, but the Fed still called inflation temporary. In my opinion, that means demand disruption will probably happen sooner than many people imagine.
What does slowing demand mean for TGT stocks?
Target is in the sweet spot in the sense that it offers consumers both essential and optional purchases. I’m here.
Simply put, even if consumers may bypass some of the arbitrary items in the store, there are still reasons to shop at Target.And Target has a leading position in the omnichannel retail movement. , we are well positioned to serve consumers wherever their shopping habits lie.
It expects to hold at least one or two CPI reports with another Federal Reserve before Target files its next earnings report. This data will help frame what the holiday season and next quarter look like for TGT stocks.
Long live the king
Sorry, I couldn’t resist. But this leads him to one of the reasons investors want to hold onto his TGT shares. Target now joins the exclusive ranks of Dividend Kings. These are the companies that have raised interest rates for at least 50 consecutive years.
A dividend yield of 2.65% might not be too impressive. However, as dividend investors know, it’s the payout that counts. And now, on an annualized basis, Target is paying $4.32 per share.
With a payout ratio of around 40%, investors should be prepared for slower dividend growth than the 7.3% average over the past three years. But with a dividend of over $4 per share, Target has some good intentions built in.
As such, Target still looks like a solid option for long-term investors, but it’s up to you to decide if the dividend is good enough to interest short-term investors.