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Target's Near 5% Dividend Yield: A Historic Opportunity for Income Investors
As Target transforms its grocery business and maintains strong cash flow, patient investors can lock in unprecedented yields on this retail giant trading at historically attractive valuations.
Dissecting the Markets
April 17, 2025
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During these times, the yields on some of our favorite brands in the stock market are irresistible. Imagine buying your favorite dividend growth stock at a 3% dividend yield when it has historically traded with a 1% dividend yield. Or better yet, imagine being allowed to lock in a near 5% dividend yield on your favorite retail stock that typically trades with a 2-3% dividend yield. That retail that I was referring to is Target $TGT ( ▼ 3.95% ) .
Since 2021, Target’s operating revenue has grown from $92 billion in 2020 to $105 billion in 2024. For a company that’s barely growing in a rising interest rate world, their stock price plunge from 2021 makes sense. The dividend yield that Target offers investors is starting to become competitive with the yield on treasuries, and it wouldn’t surprise me if they get pushed higher to account for the higher risk that holding equities holds compared to bonds.
Chart from FinChat
If you’re confused by the chart, know that Jan’21 represents Operating Revenues from January 31, 2020 to January 31, 2021.
And here is their retail square footage over time. I’ve attached both a visual chart and a table that displays this information. Overall, Target's retail square footage over time has barely grown since 2016. But the amount of sales it generates per square footage has grown immensely since then.
Fiscal Year | Retail Square Footage (in millions) | Growth % |
2016 | 239.5 | 0.0% |
2017 | 239.5 | 0.0% |
2018 | 239.4 | 0.0% |
2019 | 239.6 | 0.1% |
2020 | 240.5 | 0.4% |
2021 | 241.6 | 0.5% |
2022 | 243.3 | 0.7% |
2023 | 244.6 | 0.5% |
2024 | 245.9 | 0.5% |
2025 | 248.3 | 1.0% |
When we see Target’s historic dividend yield, we know that it has reached a new all-time high. Currently, as of April 16, 2025, its dividend yield is 4.95%, which is so close to 5%. Income investors buying Target shares now are getting a sweet deal on their investment, especially when knowing that Target is a business that can generate earnings growth and can pass on rising costs to its customers.
Despite trading at one of the highest dividend yields ever, Target doesn’t seem to be struggling. The company is generating free cash flow (see chart below), their revenues have remained steady, and the stock is trading at one of their highest free cash flow yield in history. While the current and quick ratios are less than one, which can concern investors, Target is a cash cow business that generates revenue every day. They can meet their debt obligations, and if they face any cash shortfalls, they can raise capital or ask lenders for an extension on payments to generate additional cash. Since their current ratio has consistently been 1 or near 1, their financial health situation is less concerning than some will say.
From a fundamental standpoint, Target stands out as a retailer by combining discount pricing with a premium shopping experience. Sure, the company is losing customers to Walmart but this trend is small as Target continues to maintain revenues above $100 billion since 2021.
Walmart’s stock has been doing better than Target because Walmart sells more groceries and everyday essentials, while Target has a larger exposure to consumer discretionary items. But let’s not forget that Target entered the grocery space two decades ago while Walmart has been in the grocery space since 1988. It wasn’t until the past couple of years that Target’s grocery sales have accelerated. Good & Gather, Target’s most well-known private label brand, launched in 2019 and generates nearly $4 billion in annual revenue by Q2 2024.
Target’s private label food and beverage division is highly underrated. According to Jasmine Vasquez, Target’s vice president of food and beverage for Target’s private label brands, over 60% of their private label items do not have a national brand equivalent. For the summer of 2024, instead of relying on private label sunscreen sales during the summertime, Target chose to go above and beyond by making 125 new food and beverage items for their Good & Gather and Favorite Day private label brands. During the fall season, Target makes seasonal private-label foods and beverages.
Altogether, Target’s efforts to make its private label grocery brand exciting have helped make grocery a bigger part of its business. To give you perspective, in 2007, groceries accounted for 13% of Target’s sales. In 2024, groceries accounted for 22.7% of Target’s sales. It’s still highly dependent on the sale of consumer discretionary items, but there is visible progress that’s been made in becoming a bigger grocer.
On the plus side, as Target focuses on growing its grocery business, its sales for both clothes and beauty products have risen as well. This strategy of using low prices on essentials to get people into the store, and then hoping they’ll end up buying some of the higher-margin items, is a well-known and highly utilized strategy in the business world. Costco prices its hot dogs at $1.50 for that exact reason. Gas stations price their gas near breakeven for the same reason as well.
For in-the-know investors, not only do they see a more resilient Target in the making, but they will also enjoy locking in a higher dividend yield on one of America’s favorite retailers.