In my latest Pulse article, Target Corporation (TGT) turned out to be the fifth largest position in DivGro. The reason is that in May, I added shares to my TGT position due to the assignment of put options.Before this trade, I owned 340 shares of TGT. I decided to sell 40 shares and so reduce my TGT position to 300 shares. This short article presents a summary of the trades and dividends received.
Like many food retailers, TGT is under pressure as investors are concerned about the possible impact of Amazon (AMZN) buying Whole Foods (WFM). The company is dealing with other issues, too, including a restructuring of stores and sales strategy.
On the other hand, TGT recently increased its dividend by 3.33% and the stock now yields 4.76% at $52.09 per share. TGT's payout ratio on a trailing twelve-month basis is only 49% and even if the company's conservative earnings outlook is used instead, the forward payout ratio would be about 60%. So the dividend still is sustainable.
TGT is trading at a 7% discount to my fair value estimate and is ranked #12 of the stocks in my portfolio. I consider the stock a 5-star stock, meaning it is worth considering if you don't yet own shares:
| Target Corporation (TGT) | • discount 7% | • rank #12 • ★★★★★☆☆ |
However, STAG now trades about 8% above fair value, so I think it was a good time to part ways. Here is my assessment of STAG based on the analysis I performed for my latest pulse article:
| STAG Industrial, Inc (STAG) | • premium 8% | • rank #48 • ★☆☆☆☆☆☆ |
Here is a 5-year chart of TGT's share price action, indicating when I bought the 40 shares I sold:
Trade Summary
| 2013-12-04 | Bought 140 shares of TGT at $62.82 per share: | $ | 2,512.80 |
| 2014-03-10 | Dividend on 40 shares at 43¢ per share: | $ | 17.20 |
| 2014-06-10 | Dividend on 40 shares at 43¢ per share: | $ | 17.20 |
| 2014-09-10 | Dividend on 40 shares at 52¢ per share: | $ | 20.80 |
| 2014-12-10 | Dividend on 40 shares at 52¢ per share: | $ | 20.80 |
| 2015-03-10 | Dividend on 40 shares at 52¢ per share: | $ | 20.80 |
| 2015-06-10 | Dividend on 40 shares at 52¢ per share: | $ | 20.80 |
| 2015-09-10 | Dividend on 40 shares at 56¢ per share: | $ | 22.40 |
| 2015-12-10 | Dividend on 40 shares at 56¢ per share: | $ | 22.40 |
| 2016-03-10 | Dividend on 40 shares at 56¢ per share: | $ | 22.40 |
| 2016-06-10 | Dividend on 40 shares at 56¢ per share: | $ | 22.40 |
| 2016-09-12 | Dividend on 40 shares at 60¢ per share: | $ | 24.00 |
| 2016-12-12 | Dividend on 40 shares at 60¢ per share: | $ | 24.00 |
| 2017-03-10 | Dividend on 40 shares at 60¢ per share: | $ | 24.00 |
| 2016-06-12 | Dividend on 40 shares at 60¢ per share: | $ | 24.00 |
| 2017-06-29 | Sold 40 shares of TGT at $52.37 per share: | $ | 2,094.75 |
Capital loss:
|
$
|
418.05
| |
Dividends received:
|
$
|
303.20
| |
Commissions/fees/taxes:
|
$
|
3.00
| |
Net loss:
|
$
|
117.85
|
I made a net loss of 4.7% on the original amount invested, which is a loss of 1.31% annualized.
Reducing my TGT position by 40 shares reduced DivGro's projected annual dividend income by $99.20. The average cost basis of my TGT shares increased to $71.31, while the average yield on cost of my TGT shares is 3.48%.
Thanks for reading!
If you own TGT, are you concerned about the company's challenges? Do you plan to sell your shares or are you hanging on to collect the 4.76 yield? Please share your thoughts in the comments!
Wasn't expecting this. I have been reading more TGT buys in recent days/weeks and this is the only sell post I have come across. While I don't hold any TGT nor plan to it seems like most are holding or averaging down at these better values and yields. If I did have TGT I'd probably stick around. Thanks for sharing.
ReplyDelete40 shares of 340 is about 12%, so not a big reduction. One reason I sold the 40 shares is that it is in a different account -- the one I still need to transfer to Interactive Brokers. I'm not getting out of TGT, just simplifying things a little with a view to continue my consolidation process.
DeleteThe recent sell of in retailers made me sell an option on TGT, strike 50. It is my expectation not to own the stock, just get the premium. 50 looks like a good price to me.
ReplyDeleteI did a similar trade following the sell-off, though I went with the $45: (TGT Oct 20 2017 45.00 P). Same deal: I want the premium and not necessarily buy more shares.
DeleteYou wrote: 'TGT is trading at a 7% discount to my fair value estimate'. So I don't understand, why are you sold that 40 TGT shares? I missed the reason from your article. Are you concerned about the company's future?
ReplyDeleteI won't buy TGT, because it was improving very slowly and I am concerned about the company's future growth. It has a good dividend yield, but I won't expect great growth from this YOC. The diluted EPS was $3.21 in 2006, and $4,70 in 2016. It means a 3.89% CAGR. The revenues shows only 1.57% CAGR on the same time frame.
As mentioned above, the 40 shares of 340 shares represent only 12% of the original position. I'm in the process of consolidating my accounts and would like to end up at Interactive Brokers where I trade options. The 40 shares would be eligible for a covered call trade, and TGT was already my 5th largest position, so I didn't want to BUY 60 more shares to round things out.
DeleteTGT is facing challenging times, especially now with the increased pressure from online behemoth AMZN. However, I still think TGT is a solid dividend growth stock to own, given the yield and reasonable payout ratio. You're right about declining dividend growth rate, which is a problem. But I'm boosting my dividend income with options income, so I'm OK sticking it out with TGT.
Ford is the same story for me, its PE is like 7 vs 25 for S&P 500, it made so sense to me. TGT earnings hasn't been bad, I bought some when TGT was down to $57, then $49. But selling is never easy, I'm glad you make swift decision and use the money somewhere else better.
ReplyDeleteHi, vivianne -- thanks for commenting. As mentioned, I only trimmed my TGT position by about 12%. It really is more a matter of simplifying things so that I own shares in only one account, where I can sell covered calls against my position.
DeleteI am still holding on to mine. i would buy more TGT but it is currently full position for me.
ReplyDeleteI sold only 12% of my TGT position, so I'm also still holding on!
Delete