Key Points
Despite the market trading in record territory, this leading retail stock sells at a very cheap valuation.
The company’s struggles are hard to ignore, with same-store sales declining in the past two fiscal years.
Management is committed to shareholders, raising the dividend in 54 straight years.
10 stocks we like better than Target ›
While many investors are constantly trying to find the next big winners, there are some market participants who are happy owning businesses that cut them a check. Generating income from the stocks in your portfolio can provide stability and peace of mind, especially when there are heightened geopolitical and macro risks to worry about.
An even better situation can be to buy a company like this that’s trading at a dirt cheap valuation. In theory, this should add significant upside. Investors don’t have to look far to identify a leading retailer that fits the description.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »
If you invest $10,000 in this bargain dividend stock, will you become a millionaire?
Image source: Target.
Shares are historically cheap
The business in question that sells at a cheap valuation is Target (NYSE: TGT). With $23.8 billion in revenue in first-quarter 2025 (ended May 3), this is one of the biggest retailers in the U.S. But the market has soured on the company.
As of July 10, shares trade 61% below their peak, which was established in November 2021 when Target was posting stellar financial results. Investors can buy the stock right now at a price-to-earnings ratio of just 11.3. In the last 10 years, shares have rarely been less expensive.
Dealing with ongoing issues
Target’s shares are cheap for a reason. This business is struggling, to put it mildly. Revenue declined 1.6% in fiscal 2023, before falling 0.8% in fiscal 2024. The negative trend continued into the latest fiscal quarter, with sales dipping 2.8%.
These drops were driven by decreasing same-store sales, which is a critical metric for retail companies. Foot traffic was lower in the most recent fiscal quarter than in Q1 2024. No investor wants to see this.
To its credit, Target has cemented itself as a top player in the retail sector. However, the industry is incredibly competitive, and customers have zero switching costs. Unless a retailer provides better product quality, a wider inventory selection, or lower pricing, it’s hard to consistently stand out in the minds of consumers. The dominance of Amazon and Walmart doesn’t help.
President Donald Trump’s trade decisions create a dynamic environment that makes it difficult for retailers to operate. Target is shifting its supply chain, trying to change terms with vendors and source fewer products from China. The leadership team said that it will raise prices on some items as well.
Target focuses more on selling discretionary goods. Food, beverage, and household essentials, which can be viewed as non-discretionary, combined made up 43% of revenue in Q1. However, this reveals that 57% of the company’s sales are from things that people can delay purchasing when times get tough.
It’s not necessarily all bad news. Target is finding success with its paid loyalty program, Target Circle 360, helping drive solid digital sales growth. The business also created an “Enterprise Acceleration Office” to jump-start growth, although success isn’t guaranteed.
Targeting income investors
Target’s operations might be challenged. However, this remains a consistently profitable enterprise. As a result, management has the ability to return capital to shareholders. In fact, Target has raised its dividend for 54 straight years, an unbelievable track record. And the current dividend yield of nearly 4.4% can be enticing, translating to almost $440 in yearly income on a $10,000 investment.
In my view, only income-seeking investors should consider this stock. That’s because Target isn’t going to generate huge growth going forward. Rapid store expansion is a thing of the past.
Consequently, this stock won’t make you a millionaire. For what it’s worth, it’s probably not a good idea to hope that any single business can produce such a monster return. It’s best to instead have a diversified portfolio.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Target, and Walmart. The Motley Fool has a disclosure policy.
