Recent Buy (Again) – Target Corporation – TGT

It feels good to step off the sidelines and buy a stock considering the market has been on a tear for the last few months.  Slowly and surely, I was stashing cash aside waiting for the right opportunity to strike.   On this day, I received a message from Lanny in the morning that was short and to the point. “Target…may be time to buy.”  I had just woke up at this time (I was in a timezone two hours behind), but I knew that message meant that something big happened with Target’s stock that caused the price to drop.  When I read the text, I didn’t realize it, but Target was falling after their most recent earnings release.  The time was right, so let’s see I decided to purchase additional shares of Target this week.

The reason I was able to make a quick decision was because Lanny did a lot of the leg-work for researching and summarizing the current metrics for Target when he published his August stock watch list.   In his watch list, he showed that Target passed the three metrics of our stock screener with flying colors (multiple below the market, payout ratio below 60%, and history of increasing their dividend).   Because of this research, I didn’t have to spend any time calculating or reviewing these items the morning of the purchase.  Plus, Target’s stock price fell sharply the day of my purchase, so I knew that the P/E Ratio Lanny used in his watch list had fallen even further….BOOM.  Thanks for doing the legwork for me on this part Lanny.

So I already knew that Target was a fit for my portfolio, but before I made the purchase, I wanted to dive into the press release that caused the stock to drop drastically that day.  Ben at Sure Dividend also wrote a great piece comparing Target and Wal-Mart’s recent earnings releases that shared a lot of the same feelings I had about Target at the time of purchase.  In fact, I was very happy when I read his piece after I purchased the stock to validate some of my thoughts! Definitely recommend stopping by and reading his article as well.  In terms of the press release. There was some good, along with the bad.  I’ll start with the negative to get it out-of-the-way.  The negative items that jumped out at me the most were the lack of sales growth and the downward revision in forward guidance, which was the main driver in the decrease.   Nobody wants to see lower forward guidance, especially as rivals are making moves and showing stronger results in the same operating environment.   Further, watching CNBC and reading a few articles, some estimated that the downward revision may have been too generous and not reflective of the full picture.  We obviously can’t confirm that sentiment/theory until the actual results trickle in.

Now, on to the positive.  Man did the company announce an impressive share buyback during the quarter.   From the earnings release, Target ended up “Repurchasing 19.0 million shares of common stock at an average price of $70.91, for a total investment of $1,350 million.  We have beaten the point in time and time again, all originating from our article about how share buybacks can provide dividend investors huge benefits through a reduction in shares, increasing EPS, driving down the payout ratio, and so on.  19 million common shares is a pretty impressive figure and even better, the $70.91 average purchase price was within $.10/share of the price that Target’s stock was at as I was reading at the press release.  If Target’s management was willing to buy perceived under-valued shares at the current market price, why shouldn’t I?  Some of the other positives included an adjusted EPS that was greater than the prior period (the adjustment related to one-time early debt extinguishment costs) and a discussion of a massive cost reduction undertaking.  All positives in my book.

So what tipped the scale in favor of the buy despite the negatives in the press release?  Lanny’s recent piece about not timing the market served as a perfectly timed reminder that this is a long-term investors game.  Target faces its share of short-term headwinds and the company will have some work to do.  However, this certainly isn’t he first time Target will face short-term headwinds and it won’t be the last.  What I know is that Target has proven to dividend investor’s over time that they will find a way to increase their dividend (45 consecutive years).  Further, the company is actively working on ways to drive the company going forward to compete with Wal-Mart and others.  Big change in organizations takes some time, and I am willing to wait it out because of their prior track record, returns to shareholders via dividends and share buybacks, and their current metrics showing they are discounted compared to the market.   I’m in this for the long haul and I am ready to ride the ship through the head winds as I sail towards financial freedom.

The part you have all been waiting for….the purchase details.   This week, I added 30 shares of Target at a price of $70.909 per share.   This trade added $72 in annual dividend income to my portfolio.  In total, I now own 80 shares of Target producing $192 in forward income annually.  The only thing that sucks about the timing of this purchase is that it happened two days after the ex-dividend date.  However, if I would have bought pre-ex date, which was before the earnings release, I would not have captured the pullback in price.  I think I got the better end of that bargain.  One more cool tidbit with this purchase.  This is not the first EVER individual stock position I have owned which is greater that $5,000.   I cannot wait until I receive my December dividend that will have the full power of the position.  This will be a huge help pushing the dividend snowball forward and realizing the power of dividend re-investing.

What are your thoughts on the purchase?  Are you considering buying Target?  Or are the headwinds too strong for you and pushing you towards a company like Wal-Mart or a different company?  Have you ever owned a position over $5,000 before?  If so, what company?   Looking forward to your comments everyone!

Bert

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29 thoughts on “Recent Buy (Again) – Target Corporation – TGT

  1. Hi Bert! Great addition. Just bought some additional shares as well. I think you hit the nail on the head. Long term, TGT will be just fine. Thanks for sharing your purchase!

    • Thanks Adam! Look at us both making moves here. Companies will go through cycles periodically and present some great short term buying opportunities. It would be one thing if their payout ratio were creeping up or they weren’t buying back sharse left and right. However, that isn’t the case here. I’m on this long term train with you haha

      Bert

    • No problem Ben. It was a very well written article that summed up the earnings releases pretty darn well. I agree, this market has been brutal for presenting buying opps, so you have to take advantage of them while you can.

      Take care!

      Bert

  2. Interesting stuff Bert – lower sales/lower guidance is normally a bad sign, but you guys are being brave and seeing it as an opportunity. Hopefully it’s only a temporary blip and Target will start growing again 🙂

    Tristan

    • Thanks Tristan! Luckily, the company has a history of continuing to grow their dividend through short term blips and periods of success. That helps me invest in the periods where there are some short term yellow flags and feel confident it will work out in the long term. Let’s hope we are right haha

      Bert

  3. Bert,

    I think this is a great purchase. Target hasn’t looked this compelling since early 2014 after the security breach. I too recently made a couple of TGT buys along with M. I think both of these beaten up names will be great long term holdings.

    MDP

    • Thanks MDP! Congrats on your pickups as well and taking advantage of the downturn. I agree, the company hasn’t looked this great since the breach. I’m still kicking myself that I didn’t buy when TGT was trading in the 40s post security breach. This also has me thinking about last year when WMT’s price fell based on lowered guidance and yellow flags about their future growth. Look at Wal-Mart now, their engine is rolling after the acquisition announcement and a few changes in the way they operate. Should have bought them on that decrease/weakness and you bet that period was also in my mind when buying TGT.

      Bert

    • Thanks R2R! You’ll have to write back and let us know of your decision to buy (if that’s what you choose). I didn’t want to mess around with this purchase haha Adding 30 for a combined position of 80 shares should pack quite the punch when September rolls around and I collect my first dividend check from my favorite retailer.

      Bert

  4. I wasn’t surprised to see this post today. When TGT dropped last week, I thought of you Bert. I figured you’d pounce and buy more shares. I almost bought, but decided to sell puts instead. If TGT dips a bit more, I’ll buy too. Nice job.

    • Thanks IH! I’m honored you thought of me on this one. Turns out you know me pretty darn well haha I love Target and was just there yesterday stocking up on some groceries or some FLO products to help your and your recent purchase out. Do you have a price point in mind for Target?

      Bert

      • I sold my puts at the current price, $70. This paid me a $100 premium. I’m fine buying at $70, which would really be $69 thanks to the option. I sold the put out a few months just to buy me time see which way the stock moves. If the price falls well below $70, I’ll carry the put to a later date at a lower price. But I’d buy it outright today at its current price. I may by 50 shares next week, then wait out the put. I sold 47 shares at $75 last month. It would be nice to get them back at $70 or lower. Owning 150 shares of TGT would be just fine with me too ;-).

        All the current interest rate hike talk may provide all of us some temporary dips in the coming weeks. I hope so anyway.

    • TDM,

      Boom, welcome the the shareholder club my friend! Isn’t it nice when you see others rallying around your purchase. Definitely makes you feel better about your buy, that’s for sure.

      Thanks for stopping by!

      Bert

  5. Great buy, Bert!

    I personally and always wait at least for 3 months before diving into the stock market. Patience is required, but it’s worth to do so because that saves a lot of money.

    I love the way you two always think twice before buying stocks. Awesome job!!!

    • Thanks Yoshiko! Woah, three months is a long waiting period. Do you only wait when the market is climbing? OR do you do this for all market environments. Definitely agree though, patience is a virtue and can benefit/avoid knee jerk decisions.

      Bert

  6. Enjoyed the post Bert. Personally I am not a huge fan of retailers. My last two articles were about ‘Why Amazon scares me’. I am more afraid for the mainstream UK retailers, but do think retailers in the US will be okay if they get can deliver successfully on their online platforms, but do still have some nagging doubts given the research I have been doing into Amazon, they really are formidably competitive. Would be interested to know your views on Amazon.
    DT

    • DT,

      I’ll have to check out your Amazon articles. Love Amazon as well and am a huge Prime fan as well. That being said, I am still high on the diversified big box retailers like WalMart and Target. I would be more concerned if the company I were researching were focused in one area, such as just a big box clothing retailer. Looking forward to reading.

      Bert

  7. Great buy especially with the 2x coverage ratio. This was on my list and I put in a limit order hoping for a bit more pullback.

    • Thanks ZJ. It was really cool seeing that when I updated my spreadsheet, that’s for sure. Hopefully this won’t be the last one that is over $5,000. Hopefully you can scrape together the dollars and grab some shares while the metrics are looking great.

      Take care!

      Bert

  8. Hi Bert! I think you made an excellent purchase! I am considering going in on Target as well. I’ve always been a big fan of Wal-mart and I try to keep all my purchases over $5,000. I look forward to hearing how your purchase plays out. 🙂
    -Jeff

    • Thanks Andy! Was this your first purchase of Target? If so, welcome to the club! In the long run, I am convinced that TGT will be just fine. Great opportunity to add an Aristocrat to your portfolio.

      Bert

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