Is This Undervalued Dividend King the Best Income Stock to Buy Today?

Key Points

• Dividend Kings have long histories of providing investors with reliable annual dividend increases.

• The retail sector includes a handful of Dividend Kings, but Target is one of the worst-performers now.

• With a 5.2% yield and a history of muddling through hard times, Target could be the best buy right now.

• 10 stocks we like better than Target ›

The list of Dividend Kings contains a handful of retailers you will almost certainly know, including Walmart (NYSE: WMT) and Target (NYSE: TGT). This pair is notable because they are direct competitors. But there's a big difference between these two stocks right now, highlighted by their dividend yields. Walmart's yield is 0.9% and Target's is sitting at around 5.2%.

Here's why Target's lofty yield could signal that it is one of the best undervalued Dividend Kings you can buy today.

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Target and Walmart are at different extremes

The S&P 500 index has a tiny dividend yield of 1.2% today. Walmart's yield is even lower! Target's yield, on the other hand, is multiples of the market and over 5 times higher than that of Walmart. Very clearly, investors have different views on these two retail giants.

Image source: Getty Images.

To be fair, Walmart, with a market cap of around $800 billion, is one of the largest consumer staples companies on the planet. It is much, much larger than Target, which has a market cap of nearly $40 billion. Walmart also has a much more diverse business, highlighting both its global reach and its club stores.

Target competes against Walmart in the domestic grocery and big box store spaces. But in the U.S. market, they are two of the biggest retailers, fierce competitors, and pretty much the two main alternatives that customers have when it comes to big box stores.

One place where these two giants stand toe to toe, however, is with dividends. As noted, both are Dividend Kings. That shows just how resilient their businesses have been over time. But there's a twist here because Target and Walmart compete with each other for customers. Consumer tastes shift over time, and sometimes Walmart's everyday low-price approach is more attractive, while at other times, Target's slightly more upscale focus is in favor.

Right now, with consumers worried about inflation and the risk of a recession, everyday low prices are winning the day.

TGT data by YCharts.

Target is cheap for a reason, but you might want to buy it anyway

To put some numbers on it, Walmart's U.S. sales rose 4.8% in the second quarter of 2025, with same-store sales up 4.6%. Target's sales in the quarter fell 0.9%, with same-store sales off by 1.9%. Wall Street has reacted as you would expect, selling Target and buying Walmart.

Walmart shares are trading near all-time highs, while Target's stock is down 66% from its highs in 2021. But history suggests that, eventually, consumers will shift back to shopping at Target. On that front, it is worth noting that Target and its board of directors are working on a business turnaround, which has included a change in the CEO suite.

Target's proven ability to muddle through hard times is a sign that investors should probably give the company the benefit of the doubt as it works through its current issues. In fact, it could be one of the most attractive undervalued bargains in the Dividend King universe.

The stock's price-to-sales, price-to-earnings, and price-to-book-value ratios are all well below their five-year averages. And that lofty yield happens to be near the highest levels in recent history. Target isn't just on the discount rack; it is on the deep discount rack.

Dividend King Target could be worth the risk

Clearly, Target is underperforming as a business, even as its peer Walmart is doing rather well. But the valuations on Wall Street reflect this dichotomy. If you can handle a little near-term uncertainty, taking a risk on a Target turnaround could be a very attractive opportunity. You'll get paid well to wait, and if things get better, as history suggests they will, you'll benefit from a rise in the stock price, too.

Should you invest $1,000 in Target right now?

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target and Walmart. The Motley Fool has a disclosure policy.