I made a new buy for my Vrijheid Fonds.
Target is part of my Vrijheid Fonds since 2014 and is generation about €65 of passive income per year for me. But last quarter Target came with a painful surprise, they announced a cut in their earnings guidance. Therefore the stock price has been punished really hard, too hard in my humble opinion.
The share price is bottoming now and while they may not come back with a skyrocket, they are likely to begin creeping higher from here. TGT is at a five-year low and looks attractive as a passive income generator.
So lets look at the analyses of Target.
Dividend Aristocrat: TGT is paying Dividend for 49 years in a row. It is therefore a Dividend Aristocrat on the CCC-list from David Fish! (No.23). The company has not gone more than four quarters without a dividend increase since mid-2003! They are a three star stock on Morningstar.com. That’s a Pass!
Dividend Yield > 2.5%: The dividend Yield of TGT is 4.3%. This is above the industry average of 2.2%. And above its 5 years average (2.7%). The Yield is above the requirements of the Pollie-Code, and therefore it passes the second Pollie-code.
Dividend payout <70%: The dividend payout is roughly 52%. This is below the maximum ratio. This’s what a DGI wants. So also passed for this point.
DGR 1 year > 0%: The dividend growth rate for 1, 3, 5 and 10 years are 7.4, 13.7, 16.1 and 18.1. With a 3-years average around 14% this looks very good! It is above the requirements of the Pollie-code and above the inflation rate, so it is a pass.
P/E-ratio < 15: This is an easy metric that is well documented. It can be used as a quick metric to identify stocks that may potentially be undervalued. I use this to identify stocks that may be discounted compared to the overall stock market. TGT has a current P/E ratio of 12.2. The industry average is 18.3. The P/E ratio is below the industry average. And it is lower that its 5-years average (17.4). This is a pass.
EPS > 0: The EPS is 4.6. So TGT passed the sixth Pollie-Code
ROE > 10%: Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. The current ROE is 23%. This is another pass.
Market Cap. > 100M: No problem at this point. The Market cap. is more than $ 31.270 Mil. You guested it already: Another pass.
Chowder Rule > 12: Named after “Seeking Alpha” member Chowder. This is a method of identifying candidates for purchase based on a combination of yield and (5-year) dividend growth rate. When the sum of these elements is above 12%, the company presents an attractive entry point (8% for utilities). When the figure is above 8%, an existing holding is still considered worthy of being retained. The current Chowder rule is 20.4. This is therefore a pass on the Pollie-code.
Stock price 52wk high-25%: The 52 wk. high and low are: 80.68 and 52.72. This means that TGT will be in my buying zone when the stock price is below 73.69 ((80.68-52.72)*0,75 + 52.72). At this moment TGT is trading for $55.85. Therefore it is a pass on the Pollie-Code.
Beta: I think it’s important to have low Beta stocks in my portfolio. This helps to have a stable income all the time, even when the market has a rapid decline. The Beta for TGT is 0.51.
Conclusion: When I look at my analysis it is all green. So TGT passed 10 out of 10 from the Pollie-code! That’s great!
Historically, Target is trading at a low valuation. They have a high yield that they will easily be able to cover, and a price, which is compelling given their low payout ratio and strong balance sheet. There are multiple reasons for price shares to rise in the future
On the basis of this information/research I took action.
Last weeks I bought 34 shares of TGT at $55.79 per share (incl. fees). With this buy I added a little bit more than €47 (after taxes) of dividend to my Vrijheid Fonds for this year. My projected annual (2017) total amount from my shares of TGT will be €115 after taxes. The projected dividend income for 2017 for my Vrijheid Fonds is €3,052.
Again a small step in my journey and one-step closer to my goal.
Has anyone invested in this company recently? Feedback is greatly appreciated!
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