Why Target (NYSE:TGT) is the Premier Big-Box Retailer Stock

All of the big-box retailers like Target (NYSE:TGT) have several similar qualities that set them apart from traditional stores. For example, they usually have large physical locations, are part of a chain of stores, and offer a huge variety of different products and services that are available for consumers to purchase. This business model was very profitable during the pandemic, as many of these stores were deemed essential businesses and benefitted from panic buying.

Now, big-box retailers are at an interesting crossroads. Some investors think that these types of companies hit their peak in sales last year thanks to all of the stimulus payments and people stocking up on consumer goods to deal with the pandemic. That view is certainly warranted, but there are still plenty of reasons to be bullish about big-box retailers going forward. This is especially true for Target, a company that is firing on all cylinders at the moment. 

Let's discuss a few reasons why Target is the premier big-box retailer stock.

Intelligent Strategic Moves

Target is a great company to consider owning for the long-term thanks to the intelligent strategic moves that the company’s management continues to make. First, you have to love the company’s large investments in e-commerce that are already paying off in a big way. Target saw its digital sales grow by roughly $10 billion in 2020, driven by 235% growth in the company’s same-day services. Note that Target acquired Shipt back in 2017, which is an online same-day delivery service that allows Target to fulfill orders for groceries, essentials, and more at a lightning-fast speed. While it’s true that last year more people preferred ordering from home, don’t underestimate the staying power of Target’s digital sales channel as consumer preferences permanently shift towards shopping online.

Next, like many big-box retailers, Target has developed a loyalty rewards program that is intended to keep customers coming back. The program, called Target Circle, allows customers to earn 1% back when shopping at Target and provides hundreds of different deals. This is another smart strategic move, as it will provide customer data insights that can help the company improve its inventory and create better marketing. Finally, the fact that Target matches prices on many items from Walmart and offers big discounts on differentiated products is another clever way to keep customers loyal to the company’s brand. 

Extraordinary Earnings

Another sign that Target is the best big-box retail stock to own is the fact that the company continues to deliver extraordinary earnings results. In Q1, comparable sales grew by 22.9% year-over-year and revenue was up by 23.4% year-over-year at $24.2 billion. Target also reported Q1 GAAP EPS of $4.17, which was up an astounding 643.2% year-over-year. These are fantastic operating results that confirm Target is carrying over its positive momentum from last year into 2021.

When you are looking at the best big-box retailer stocks, names like Target and Walmart are usually at the top of the list. While they are both strong companies, one key number from Target’s Q1 earnings really stands out. The company reported that it grew its market share by $1 billion in Q1, which is a truly impressive feat given the competitiveness in the retail space. Target also saw its Q1 in-store comparable sales increase by 18%, while Walmart reported less than a 3% increase in Q1 in-store comparable sales. The bottom line here is that Target is likely taking customers from Walmart at this time and growing at a quicker pace, which is another reason why it's the premier big-box retail stock to own.

Dividend Aristocrat Status

If you still aren’t convinced that Target is a great company to add for the long-term, consider the fact that the company is a dividend aristocrat. That means Target has increased its dividend payout every year for at least 25 consecutive years. There’s a reason why there are so few dividend aristocrat stocks out there to choose from, and the company’s continued commitment to rewarding shareholders is a testament to Target’s operating efficiency and strong balance sheet.

Dividend aristocrat stocks are attractive for several reasons. They offer a high probability of increased dividend payouts over the years, which is perfect for investors that are interested in compound growth. They are also typically stable businesses that don’t expose investors to as much downside risk as other areas of the market. Target stock currently offers a 1.32% dividend yield at this time and has a 5-year Dividend Growth Rate (CAGR) of 3.96%. Consider adding shares on dips after the market has had some time to digest the latest earnings release.