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2 Huge Dividend Raises You Can Still Profit From

By Eric Volkman - Jun 29, 2021 at 9:53AM

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Two well-run retailers recently announced 30%-plus increases to their dividend payouts.

In the late spring, with the coronavirus still very much in the headlines and meme stocks dominating investor conversations, it was easy to miss two giant quarterly dividend raises. Late last month, DIY retailer Lowe's (LOW 0.76%) cranked its payout 33% higher. Not to be outdone, Target (TGT 1.16%) hiked its own dividend payout by nearly the same percentage.

Fortunately, there is still time for investors to get in on both dividend raises. But do these fattened dividends necessarily make these two stocks buys? Let's explore.

Two young people with fans of $1 bills.

Image source: Getty Images.

1. Lowe's

During the coronavirus pandemic, many people confined to their homes spent their disposable incomes on making those homes more livable (or, in many cases, moving to new digs entirely).

So it's no wonder that top DIY home improvement retailer Lowe's 2020 net sales increased by a robust 24%, with GAAP net earnings zooming even higher (by 36%). Best of all for dividend devotees, free cash flow more than tripled to nearly $9.3 billion, providing that much more space for shareholder payouts.

Even with the pandemic now waning throughout the U.S., that home improvement/new home buying push doesn't seem to be fading away. As a result, Lowe's is sticking to the guidance it offered last December, in which it forecast 22% year-over-year growth in total sales for 2021, despite an anticipated drop in per-share net profit to $7.53 to $7.63 (2020 result: $7.77). It remains a compelling investment.

Lowe's increased quarterly dividend amounts to $0.80 per share, and it will be paid on Aug. 4 to stockholders of record as of July 21. At the most recent closing share price, it would yield just under 1.7%.

2. Target

Another retailer carrying its pandemic-era momentum into our apparently more healthy future is Target. The outbreak strengthened the company's pick-up options and its delivery regime, making it a go-to general merchandise outlet for a great many customers. 

In Q1 both in-person and online sales saw double-digit percentage gains, powering total revenue 23% higher to almost $24.2 billion. And even after booking a $335 million loss on the sale of the Dermstore online beauty and skincare business, it still managed a seven-fold increase in GAAP net profit to nearly $2.1 billion.

Target's guidance was more sparse than Lowe's and more modest. It's anticipating growth in comparable sales in the mid-to-high single-digit percentage range for its Q2, with that metric increasing at single-digit rates in the remaining two quarters of the year.

Regardless, with the strengths it built up during the pandemic, Target should continue to be a real force in the retail world. While it's expensive on a valuation basis, we can consider it to be best-in-class in its industry, so this is a case where a premium is justified.

As for the new dividend, it totals $0.90 per share. This is to be handed out on Sept. 10 to investors of record as of Aug. 18. It yields a theoretical 1.5% at the current stock price.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Lowes. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Target Corporation Stock Quote
Target Corporation
$173.39 (1.16%) $1.98
Lowe's Companies, Inc. Stock Quote
Lowe's Companies, Inc.
$208.04 (0.76%) $1.57

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