Recent Buy – December (Part 2)

On 7th November, I bought 180 stocks of Target (TGT) at an average price of $58.49. Target pays quarterly dividend of $0.62 (paid in the month of February, May, August and November). Dividends will be reinvested.

Total invested capital is $10,530. This purchases will increase the TDK’s annual dividend by $446.4. Dividend on this purchase yields about 4.24%.

Key Factors for Target:

Forward PE is at about 13.8 which is higher than ttm PE of 11.8, mainly due to recent lowered earning projections from the company for 2018. Since I bought, so for its been very volatile ride, due to earning announcements, lowered guidance, etc.

EBIT ttm (Earning before Interest and Tax) to EV ratio is right at 11.33%, which is higher than my minimum target of 10%. The reason I like to emphasize more on past earnings than future is because as a value investor I don’t like to pay more for the growth that is priced in, sometimes unwarranted. Future earnings are also very important but if growth expectations proves to be too steep for the company to achieve, stock price falls significantly, which I like to avoid. Thinking about risks before return is the way to go, specially after about 9 years of bull run.

Current Ratio is right at 0.91, which is less than 1.0 but Target’s ability to generate its huge cash flow from the operations even in e-commerce world and amazon competition, makes me comfortable with the purchase.

Payout Ratio is at about 51%. This leaves cushion for share repurchase, store upgrades and remodeling, CAPEX, future dividend increases, etc.

Average cash flow from operation alone for past three years is about $5.2 B.  These cash flow numbers are huge from a company of about $ 32 B in size to be able to generate 16 to 17% of cash flow from operation alone every year. Even if we compare these with enterprise value instead of  market value, these numbers are still pretty robust at about 13%.

Target has managed to reduced its outstanding share count by 4% annually from 2013 thru Q3 of 2017 (from 663 M shares down to 548 M). This is pretty extra ordinary. Share repurchase increases share holder’s ownership within the company. Stock repurchase coupled with 4+% of dividend yield, trading above 10% of EBIT/EV was definitely too good to pass on for me.

Target has challenges ahead like in any other business, such as competition with Amazon and Walmart, possibly shrinking margins too but overall I believe Target will do good.

What are your thoughts on this purchase ? What are the stocks you are buying or looking to add ?

This Post Has 4 Comments

  1. Don’t hold TGT but understand why you picked some up. I see that you have been busy buying as of late. That’s the way to do it. Keep building up that passive income stream. Thanks for sharing.

    1. Yes DH, I have been buying little more than I can afford in general only because I held onto some cash. Once the cash goes down to regular 3-6 months of my expenses, then my purchase rate will slow down and become more regular in general.

      Thanks for stopping by and happy investing.
      TDK.

  2. I do not hold TGT, but it will give thrive even with threat from Amazon due to its physical stores.

    1. Thank you Jigar commenting. I am very hopeful for Target, it has shown tremendous comeback from Canada fiasco. Outstanding share reduction, increases the ownership automatically while we wait and get paid 4+% Dividend that rises every year at a faster pace than inflation.

      Thanks for stopping by. Good Luck.
      TDK.

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