TJX (TJX) and Target (TGT) are two popular retailers that recently reported earnings. Both are dividend stocks and both companies are beloved by segments of the general public. Both recently reported earnings, with TJX holding up relatively well and Target selling off after disappointing the Street with its results, making it a good time to compare these two retail stalwarts to decide which is the better choice for dividend investors looking for new additions to their portfolios now?
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Looking at Recent Results
TJX and Target are both notable dividend stocks within the retail sector. TJX, the parent company of brands like T.J. Maxx, Marshall’s, HomeGoods, and others, recently reported third-quarter results that easily beat Wall Street’s revenue and earnings expectations, which grew year-over-year and raised full-year profitability guidance. However, shares fell slightly when it forecasted fourth-quarter earnings per share of $1.12-$1.14, slightly below analysts’ expectations of $1.18, causing shares to fall slightly.
On the other hand, Target’s shares sold off sharply in November after it reported disappointing third-quarter results, losing more than 20% on the day. Target reduced its full-year guidance, badly missed analysts’ earnings expectations, and slightly missed revenue. TJX’s results were clearly better than Target’s. However, some of Target’s problems appear temporary in nature. For example, the company loaded up on merchandise to prepare for a port strike that ended up being short-lived, which hurt earnings and caused inventory to swell.
Comparing Valuations
Dividend investors are wise to consider valuation, as this is the price they are paying for shares of their dividend stocks.
TJX trades for an above-market multiple of about 30 times January 2025 earnings estimates. Meanwhile, Target trades at an exceedingly lower below-market multiple of just 15.27 times earnings, or just half of TJ Maxx’s valuation.
TJ Maxx is a great business, and while its earnings results were better than those of Target, I find it difficult to argue that TJ Maxx should be worth twice as much as Target from a valuation perspective. After all, while it’s not an apples-to-apples comparison, these are big box retailers with plenty of overlap in the products they sell.
Sizing Up Dividend Yields
TJX currently yields 1.2%, which is in line with the S&P 500 (SPX) average yield, which also currently stands at 1.2%. Meanwhile, Target yields an attractive 3.4%, significantly higher than TJX or the broader market, making it a more attractive option for dividend investors looking for yield.
There’s much more to dividend investing than just yield, like examining a company’s consistency in paying dividends and its track record of dividend growth, which we’ll look into next.
Analyzing Track Records of Dividend Growth
TJX had a long and proud history of annual dividend growth, but unfortunately, it cut this streak of annual dividend growth in 2020 during the COVID pandemic. While I can’t blame the company for being conservative with its cash during this period of extreme uncertainty, it simply can’t compete with Target’s dividend consistency. Target has paid a dividend and increased the size of this payment for an incredible 56 years in a row, including during the pandemic. This consistency makes Target a Dividend King that investors have been able to rely on for stable and growing income for over five decades.
Measuring Pace of Dividend Growth
Both stocks have been growing their dividends at a solid clip — Target has grown its dividend at an 11.3% compound annual growth rate (CAGR) over the past five years, slightly beating TJX’s 10.5% growth rate over the same period.
Evaluating Dividend Safety
Lastly, both companies have fairly moderate dividend payout ratios of under 50% – Target’s payout ratio is 46.9%, while TJX’s is 34.3%. This means that both dividends are well covered by earnings, making it unlikely that either stock will have to cut its dividend any time soon.
Is TJX Stock a Buy, According to Analysts?
Turning to Wall Street, TJX earns a Strong Buy consensus rating based on 16 Buys, two Holds, and zero Sell ratings assigned in the past three months. The average TJX stock price target of $131.13 implies a 4% upside potential from current levels.
Is TGT Stock a Buy, According to Analysts?
Turning to Wall Street, TGT earns a Moderate Buy consensus rating based on 17 Buys, 10 Holds, and zero Sell ratings assigned in the past three months. The average TGT stock price target of $142.58 implies 10.3% upside potential from current levels.
Declaring a Winner
TJX is a great company and has a lot of appeal to investors in its own right, but Target is the better choice for dividend investors right now. Not only does it feature a substantially higher yield, but it also has a longer and more consistent track record of dividend payments and dividend growth that goes back over five decades.
Both stocks have been growing their dividend payouts at reasonable rates recently, with Target slightly edging out TJX over the past five years. Lastly, dividend investors should still consider valuation, and Target trades at just half of TJX’s valuation, making it the clear choice here.
