A couple of days ago I applied my undervalued dividend growth screen and came up with the following watch list:
- Cincinnati Financial CINF
- Community Trust Banc. CTBI
- Computer Services Inc. CSVI
- Dover Corp. DOV
- Eagle Financial Services EFSI
- First Financial Corp. THFF
- T. Rowe Price Group TROW
- Target Corp. TGT
- Wal-Mart Stores Inc. WMT
- Northeast Indiana Bancorp NIDB
- Arrow Financial Corp. AROW
- Chesapeake Financial Shares CPKF
- Meredith Corp. MDP
As I stated in that that post, my lists are done monthly and only provide a snap shot in time. The stocks represent those companies on June 6, 2016 that:
- Have a P/E less than 20 and less than their industry average; and
- Have a larger operating margin than their industry peers; and
- Have a P/B less than 4 (or less than their industry average if above that amount);
- Have a dividend yield of more than 2.5%; and
- A payout ratio of under 60%
My next step is comparing the companies to their 52 week high and 52 week low. This step is probably not necessary since I don’t plan on selling the shares any time soon, but I feel like that this technique provides some level of protection. Then for those stocks that at least catch my attention, I’ll check out the chart on Google Finance and some recent Seeking Alpha articles.
June 2016 Purchase – Target
This month’s lot was Target, which as of this post has the following metrics:
- P/E 12.9 vs 17.6 Industry
- Op Margin 7 vs 5 Industry
- P/B 3.2 vs 3.5 Industry
- Yield of 3.28%
- Payout Ratio of 41.6%
What really intrigues me about Target is the recent hit the stock has taken and the recent dividend hike.
Target’s Recent Drop
Despite the numbers above, in the past month Target has dropped 12.88% and 14.81% in the past 3 months. According to one seeking alpha article,
Several facts from the Q1 results caused the drop. Y/Y sales declined 5.4%, which was more concerning since same-store sales increased slightly over 1%. Overall growth was the lowest since 2014. Most concerning to analysts was the retailer’s forward guidance, which Target projected at $1.10-$1.20 while analysts were forecasting $1.36. But the report is hardly all negative. Digital comparable sales increased 23%. And the same-store sales figures are encouraging, especially for a retailer Target’s size. Most importantly, the sell-off made Target attractive from a valuation level: their current PE is 13.12 and their forward PE is 12.33.
When buying a company, I am not looking at a quarter or two of sales – it is whether the company has fair metrics and is likely to be stronger in 5 years than it is today. I believe that with Target.
Target’s Recent Dividend Increase
It just so happens that Target has increased it’s dividend (the same day I am writing the post):
The board of directors of Target Corporation (NYSE:TGT) has declared a quarterly dividend of 60 cents per common share, a 7.1% increase from the prior quarter dividend of 56 cents. The dividend is payable Sept. 10, 2016 to shareholders of record at the close of business August 17, 2016. The 3rd quarter dividend will be the company’s 196th consecutive dividend paid since October 1967 when the company became publicly held. With the increase announced today, 2016 is expected to be the 45th consecutive year in which Target has increased its annual dividend.
Bonus: It’ll be nice that money comes from Target instead of the other way around!