When it comes to dividend stocks, Coca-Cola is a model of consistency, having raised its dividend for 62 consecutive years. Coke’s track record for dividend raises, 3.1% yield, and recession-resistant business model make it one of the safest passive income plays out there. But there may be an even better Dividend King to buy now.
Target (NYSE: TGT) has staged quite a comeback since collapsing to a three-year low in early October 2023. But the stock has cooled off recently, falling 13% in the past three months. Here’s why Target isn’t out of the woods yet, why the dividend stock could remain under pressure, and why it is ultimately worth buying now.
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Target has been on a roller-coaster ride
Target reached an all-time high in 2021 as goods spending surged during the worst of the COVID-19 pandemic. Target’s investments in curbside pickup and e-commerce helped the company post an all-time high profit of $6.95 billion in fiscal 2021 despite challenges with in-store shopping.
But Target overestimated demand trends, especially on discretionary goods. For retailers to succeed, they must effectively manage inventory and present a product mix that resonates with customers. Stocking too little inventory can leave sales on the table while having too much inventory or featuring the wrong products can impact profits.
Target has reduced its inventory from $12.6 billion in the first quarter of fiscal 2023 to $11.7 billion in the first quarter of fiscal 2024. Its inventory reached an all-time high of $17.1 billion in the third quarter of fiscal 2022 and is now down 26% from that level.
A combination of steep discounts (especially through its Target Circle loyalty program) and leaner operations have helped Target work down its inventory. The efforts have paid off, as Target’s trailing-12-month operating margin has improved to 5.3% — up from 3.5% a year ago.
On Target’s first-quarter fiscal 2024 earnings call, CFO and COO Michael Fiddelke discussed inventory improvements and noted that sales have now outpaced inventory growth over the last five years:
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