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Target Stock: Should You Buy After Its Latest Dividend Increase?

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Congratulations, Target (NYSE: TGT  ) shareholders! Your company just gave you a 19% raise.

More specifically, the company's board of directors last week declared a quarterly dividend of $0.43 per share of Target stock, representing a 19.4% increase from the previous quarterly dividend of $0.36. In addition, the folks at Target were happy to point out that this quarter's payout will mark the company's 184th consecutive dividend since it went public in October 1967. What's more, this is the 42nd time during those 46 years that Target stock has raised its dividend for patient investors.

But with the stock up 18% year to date and trading just 4% below its 52-week high, is it still worth buying today?

The risks
To be sure, while Target's past share price appreciation and dividend history make it look like the poster child for stability, just a few weeks ago I outlined three big risks facing Target stock today.

The largest of those risks, however, lies in the fact that Target not only must compete with deep-pocketed brick-and-mortar rivals like Wal-Mart (NYSE: WMT  ) and its army of nearly 11,000 retail stores around the world, but is also facing incredible competition from online-only retail behemoths like (NASDAQ: AMZN  ) .

Most notably, though, as a result of Amazon's troublesome "showrooming" effect (when customers use Target's physical locations to check out products in person, only to buy online at a cheaper price), Target has found it increasingly difficult to maintain respectable same-store sales numbers. Sure enough, during Target's most recent quarter, same-store sales actually fell 0.6% from the same period last year as U.S. revenue rose a meager 0.5%, in part fueling a 26% year-over-year decline in its GAAP earnings per share to $0.77.

Then again, when we consider that Wal-Mart fared even worse with its own 1.2% decline along with an equally unimpressive 1% revenue increase over last year, it would appear that Target's strategy of courting dozens of brand-name designers to create exclusive Target merchandise has taken at least some of the sting away. Meanwhile, Amazon kept plugging along seemingly unaffected and boosting year-over-year revenue by an incredible 22% last quarter.

The plan
Additionally -- and understandably -- for Target, its GAAP earnings were also diluted last quarter by a whopping $0.24 per share as a direct consequence of Target's Canadian segment.

Remember that last quarter did officially mark the beginning of Target's much-anticipated expansion into Canada, where it hopes to complete around 124 new locations by the end of next year. Curiously enough, while each and every one of Target's stores were located in the U.S. at the end of 2012, Target's dividend press release last week indicated the company "serves guests at 1,832 stores -- 1,784 in the United States and 48 in Canada."

As it stands, Target management previously told investors that they expect to ultimately be able to profitably run more than 200 stores in the country en route to their ambitious goal of increasing overall revenue to $100 billion or more with annual earnings of at least $8 per share by 2017.

On the domestic front, Target also opened another 23 stores in the U.S. last year, continued to remodel existing locations, and introduced its new City Target concept stores to take advantage of untapped potential in dense urban areas like Los Angeles, Chicago, and San Francisco -- the strong performance of which has left management encouraged and investors wanting more.

In addition, Target finally closed its deal with TD Bank last quarter, which was originally announced in October and allows TD Bank to take over Target's credit card operations while maintaining a seven-year profit-sharing agreement between the two companies.

Unsurprisingly, Target has so far used proceeds and profits from the sale responsibly, first immediately repaying $1.5 billion in funding that was previously backed by the receivables of the portfolio. Then, Target launched debt tender offers to repurchase another $1 billion in "high coupon debt," which itself resulted in a one-time loss of $0.41 per share.

Finally, as promised, Target management reiterated that they intend to use the remaining proceeds to repurchase their own shares over time, with around $547 million already used last quarter to buy back 8.5 million shares of Target stock at an average price of just over $64 per share.

All in all, management plans to invest a total of more than $2 billion this year to retire shares of Target stock, representing more than 4% of the company's entire market capitalization as of this writing.

Foolish final thoughts
In the end, while Target's most recent quarterly results initially seemed to leave plenty to be desired, there are a number of reasons Target stock is still trading within reach of its 52-week-high. With shares of Target trading at just 16.4 times last year's earnings and only 12.8 times next year's estimates, I'm convinced patient investors who buy today should be more than pleased with their results over the long haul.

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