Target to announce next dividend increase

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What's Happening

Mega-retailer Target ( TGT ) sold off sharply following its recent quarterly report, but the stock has found support and has begun to make back some of its recent losses. Target has a 3.2% dividend yield, and has a lengthy 48-year streak of dividend increases. The company will likely extend that streak when it announces its next dividend this week. The stock is down 5.3% on the year.

Technical Analysis

TGT was recently trading at $68.77, down $17.04 from its 12-month high and $3.27 above its 12-month low. Technical indicators for TGT are bearish and the stock is in a strong downward trend. The stock has recent support above $65.50 and has recent resistance below $70.10. Of the 19 analysts who cover the stock, eight rate it a "strong buy", nine rate it a "hold", and two rate it a "strong sell". The stock receives S&P Capital IQ's 3 STARS "Hold" ranking.

Analyst's Thoughts

With Target's long history of dividend increases, it is very unlikely that this will be the year that the streak comes to an end. Given the pessimism that entered the stock following the recent quarterly report, Target will definitely try to bring enthusiasm back into the stock by extending its streak of dividend increases to 49 years. The stock's payout ratio is fairly low, at just 43.3%, so the company can easily afford to build on its impressive streak of increases. Last year Target boosted its quarterly distribution by 7.7%, and by 21% in 2014. Look for this year's increase to be more in-line with last year's increase, with the quarterly distribution rising from $0.56 to around $0.61, which would translate to an increase of 8.9%. Expect the news this week, with the stock trading ex-dividend mid-August.

Stock Only Trade

If you're looking to establish a long stock position in TGT, consider buying the stock under $68.75. Sell if it falls below $62.00 or take profits if it gets to $79.00.

Bullish Trade

There are no bullish hedged trades we like on TGT at this time. In order to set up a trade with an acceptable amount of risk/reward, we would have to take the trade out to October, and given the recent post-earnings sell off, we would not want to take a position with such a long time-frame at this point, just in case the next quarterly report results in another sell off in the stock.

Bearish Trade

If you want to take a bearish stance on the stock at this time, consider a July 72.50/75 bear-call credit spread for a $0.30 credit. That's a potential 13.6% return (118.5% annualized*) and the stock would have to rise 5.9% to cause a problem.

Covered Call Trade

If you like the stock, but wish to lower your cost basis on a new position, you may want to consider a July $70.00 covered call. Buy TGT shares (typically 100 shares, scale as appropriate), while selling the July $70.00 call for a debit of $67.40 per share. The trade has a target assigned return of 3.8%, and a target annualized return of 34.1% (for comparison purposes only).

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Originally published on

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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