Can Target (NYSE : TGT) Deliver in the Long Run?


The Great Recession has had an impact on every firm, big or small. Every organization has been caught in the economic chaos. But as time passed and the world rolled out of recession, the effected were left with their share of aftermath and recovery period. Some saw opportunities to exploit; while others found it hard to continue. Among them was Target (NYSE: TGT), that saw Wal-Mart (NYSE: WMT) as a role model with its strategies of ultra-low priced warehouse model, and they believed they could upscale and adopt it.

Target (NYSE: TGT) is a big name as it is the second largest discount retailer in the United States, ranking 36 on the Fortune 500 for the year 2013. After the recession, it stood on shaky ground.  Target has 1916 stores in United States and operates at 127 locations in Canada.

As a result of so many stores operating at major U.S. and Canadian locations, Target (NYSE: TGT) sales increased by 13 percent and earnings per share by 60% in the period between January 2009 and January 2013,. This built up the confidence of the investors who got a return of 150% on Target (NYSE: TGT) stocks as compared to the 58% on Walmart (NYSE: WMT) stocks.

After a security breach at Target (NYSE: TGT) last year, the company’s management, number of customers and shareholders were hit quite severely. The financial aspect also took its toll. Target (NYSE: TGT) at this point is able to offer a 3.4% dividend yield. Which is a good figure but all of it depends on Target (NYSE: TGT)’s free cash flow, which is the amount of money at hand after deducting the company cost. This money is later used to pay dividends.

If the company’s recent history is considered, Target (NYSE: TGT)’s expenditure summed up to $4.4 billion due to additional costs of new locations, buildings and redesigning in 2011. But once that was completed, the expenses decreased to $3.3 billion in 2012.

Over the past few years, the company has been using 95% of its free cash flow to pay company’s dividend. The company which has been steadily increasing its dividend for the past 42 years is suddenly only able to provide 12% free cash flow in recent years. It is a point to ponder over and investigate by the investors.

The important aspects to investigate here are how satisfied the customers are with the store and if the retailers are able to offer sales with the existing inflation.

One of the biggest factor effecting Target (NYSE: TGT) is also the security breach. The company stands at an unstable position and to ensure profitable dividend yields, the company needs to cut back on capital expenditure.

Seeing the current situation, the question that investors ask themselves is whether it is wise to invest in the company shares or not. Investors are seeking for dividend portfolios that contribute in their wealth and at this stage are unsure of Target (NYSE: TGT)’s credibility to deliver.