1 Green Flag for Target Actions at this time

SourceMotley_fool

5 Sept 2025 12:45

Key Points

• Supply chain issues, political stances, and negative reactions to its new CEO have harmed the stock.

• The struggling retailer's ability to maintain its dividend could ultimately boost the value of its stock.

• 10 stocks we like more than Target ›

When it comes to the current state of Target (NYSE: TGT) stock, any “green flags” seem unlikely. Supply chain challenges, consumer anger over the company's political stances, and the poor reception to the CEO change are just some of its recent difficulties. As a result, its stock has fallen about 65% from its peak in 2021.

Fortunately, such challenges have not overshadowed a benefit of owning shares in this retailer, and that attribute could aid in the eventual recovery of the stock.

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Image source: Target.

The green flag of Target

The green flag for owning shares of Target is its dividend. With $4.56 per share annually, it offers new shareholders a dividend yield of 4.8%, four times the average of the S&P 500 index at 1.2%.

Furthermore, Target has increased its payout for 54 consecutive years, making it a Dividend King. This is crucial because the Dividend King status attracts greater interest from investors. Breaking this streak of dividend increases would almost certainly undermine confidence in the stock and lead to further declines.

However, such a move is unlikely since Target can afford its payment. Over the last 12 months, Target generated $2.9 billion in free cash flow, well above the dividend cost of $2 billion during the same period.

The valuation of the stock can also confirm the opportunity. Its P/E ratio of 11 is well below the earnings multiple of 37 of Walmart, and this low valuation likely means that the price already incorporates its issues. This will likely limit the stock's decline and eventually increase the appreciation potential.

Indeed, Target has faced numerous difficulties in recent years, which may justify the decline in its price. However, this has led its dividend yield to high levels. Considering also the low P/E ratio, the company's ability to continue funding the payment, and the low probability of a dividend cut, the green flag represented by its dividend could finally lead to a recovery in Target's stock price.

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Will Healy has positions in Target. The Motley Fool has positions in and recommends Target and Walmart. The Motley Fool has a disclosure policy.

Disclaimer: For informational purposes only. Past performance is not indicative of future results.