Key Points
Target has recently struggled to grow comparable store sales, but new product initiatives are leading to improving store traffic.
The company has increased its dividend by 68% over the last five years and only pays around half of its annual earnings.
Target's dividend could nearly double over the next 20 years, and therefore, significantly increase the yield that investors receive on their investment.
Target (NYSE: TGT) is an intriguing dividend stock right now due to its high yield. After falling 66% from its all-time high, the stock is currently offering a forward dividend yield of 5%. This is very attractive for an established retail brand that has increased its dividend every year since 1971, putting it in elite company as a Dividend King (a company that has paid a dividend for at least 50 years).
Technology is historically the place to look for innovative companies that could deliver explosive gains, but it's not a bad idea to mix in some value and dividend stocks.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now, when you join Stock Advisor. See the stocks »
Spreading money across opportunities in high growth and solid dividend payers can help your portfolio zig when the market zags. When volatility rears its ugly head again, those regular cash deposits every quarter from your dividend holdings can feel really good.
Target's high yield does reflect added risk to the business. Let's take a look at how the business is performing and why it should continue to pay growing dividends over the long term. I believe investors who buy the stock today could realistically be looking at a stock that pays a 9% yield on the current share price in 20 years.
Target is underachieving its potential
Target has reported negative comparable store sales in six of the last nine quarters. That doesn't look good, but the worst seems to be behind the company. It reported a 1.9% year-over-year decline in comp sales last quarter, indicating a positive trend from the 5.4% decline in the same quarter two years ago.
In fact, Target reported three consecutive quarters of comp sales growth earlier this year before tariff-related pressures, including purchase order cancelations, impacted its sales performance.
Retail is a highly competitive industry, but Target has differentiated itself with its merchandising strategy. For example, its Fun 101 initiative, which aims to bring more stylish and culturally relevant products in hardlines, is driving strong demand in trading cards, with sales up 70% year to date.
Target's ability to partner with celebrities and brands to offer exclusive designs and styles in beauty, apparel, and other categories makes it a favorite destination for many shoppers looking for great deals. This gives Target a profitable niche in the industry that has supported a 68% increase in its trailing-12-month dividend over the last five years.
An undervalued dividend stock
Despite macroeconomic headwinds, Target still reported adjusted earnings per share of $2.05 and recently announced a quarterly dividend of $1.14. This dividend will be paid on Dec. 1, 2025, to those who hold shares at the close of business on Nov. 12, 2025.
Even with the year-over-year dip in earnings, Target is only paying out 62% of its full-year expected earnings in dividends. Given that the business will likely generate better sales performance when the economy is stronger, it makes the forward dividend yield of 5% look very tempting.
Target's long history of growing its dividend is also a great indicator that this business is a lot stronger than investors are giving it credit for. This is a fundamentally sound retail business that knows how to navigate economic cycles, as it has demonstrated over its history.
Analysts expect the company's adjusted earnings to grow at an annualized rate of 3.2% over the next five years. The dividend should grow in line with earnings. Assuming it sustains a 3% compound annual growth rate in earnings and dividends, Target could grow its dividend of $4.48 on a trailing-12-month basis to $8.09 in 20 years. That means from the recent share price of about $89.50, investors who patiently hold the stock for the long term could eventually earn 9% on their original investment from dividends alone.
With the stock trading at a forward price-to-earnings (P/E) multiple of 12, which is below its five-year average forward P/E of 16, the stock could also be undervalued. Overall, the stock offers a favorable risk-reward proposition, with the high yield sweetening the deal for shareholders.
Should you invest $1,000 in Target right now?
Before you buy stock in Target, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Target wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $657,979!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,122,746!*
Now, it’s worth noting Stock Advisor’s total average return is 1,060% — a market-crushing outperformance compared to 187% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.
See the 10 stocks »
*Stock Advisor returns as of October 7, 2025
John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.
