Stocks experienced significant volatility this year, which can sometimes make it challenging to keep a positive outlook. In times like these, it's worthwhile to remember that stock-market swings, even full-blown crashes, are par for the course; they don't change the fact that over the long run, equities generate competitive returns.
So it still makes sense to buy shares of companies that can deliver strong performances over five years or more. It's even better if they're trading at a discount, like Target (TGT 0.50%) and Bristol Myers Squibb (BMY 0.26%). These two top dividend stocks have not performed well this year, but they remain attractive long-term investments.
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1. Target
Retail giant Target has had a challenging year. The company's financial results have been subpar, with revenue moving in the wrong direction and guidance weak; investors have responded in kind by selling off the stock. Also not helping matters are uncertainty about the economy, which could negatively impact consumer behavior, and the potential impact of tariffs. There was also a recent national short-term boycott of Target related to management pulling back on its diversity, equity, and inclusion (DEI) initiatives.
Investors should monitor those issues, but there are still bright spots to focus on. Some of Target's troubles are due to economic factors beyond its control. The company can weather the storm. Once it passes, things should improve, especially as it continues to implement critical initiatives that will help it turn the corner.
Target recently launched an Enterprise Acceleration Office, led by chief operating officer Michael Fiddelke. It hopes this will help boost productivity and efficiency across the business, notably by implementing tech-based changes.
NYSE: TGT
Key Data Points
Elsewhere, Target could continue to leverage digital business to drive growth. In the first quarter, Target's net sales decreased to $23.8 billion, a 2.9% decline compared to the year-ago period. Comparable sales decreased 3.8%; however, digital comparable sales rose 4.7%.
Target Circle 360 is a paid subscription option launched just last year that is already helping boost the company's digital business. It grants subscribers various perks, including free same-day and two-day shipping. And Target's digital business includes Roundel, a personalized advertising unit.
With these initiatives, Target is adapting to the modern commerce landscape. In my view, there's significant room for growth for the company in digital sales and ad revenue, given that Target remains a leading retail giant, even if it takes some time for the company to recover.
Meanwhile, Target's recent forward price-to-earnings (P/E) ratio of 13.7 looks more than reasonable compared to the average for consumer staples stocks, which is 22.6.
The company also has a superior dividend profile. Target is a Dividend King that has raised its payouts for 53 consecutive years. Its forward yield of 4.6% (the average for the S&P 500 is 1.3%) and cash payout ratio of 45.7% also look attractive. The stock might still experience some struggles in the near term due to economic (and other) issues, but Target should reward patient investors down the line.
2. Bristol Myers Squibb
Bristol Myers Squibb, a leading pharmaceutical company, has encountered significant patent cliffs over the past few years, and it isn't out of the woods just yet. There are still several cliffs on the horizon for the drugmaker, including one for Opdivo, a cancer drug that's one of its top-selling therapies and should lose U.S. patent exclusivity in 2028.
However, BMS (as it is also known) has devised a plan to get around this issue. It developed a subcutaneous version of Opdivo that will extend the drug's patent life while overlapping with the original's indications. This version, dubbed Opdivo Qvantig, earned approval from the U.S. Food and Drug Administration in December.
NYSE: BMY
Key Data Points
Meanwhile, the company has earned important brand-new approvals in recent years. One of the most important is Reblozyl, a therapy for anemia in patients with beta-thalassemia (a rare blood disease). In the first quarter, Reblozyl's sales increased by 35% year over year to $478 million. Opdualag, another newer cancer medicine, generated $252 million in sales, a 23% increase compared to the same period last year.
Revenue declined by 6% year over year in the first quarter to $11.2 billion. But as newer products gain traction and the company earns approval for other new drugs, it should be able to reverse course.
Turning to BMS' dividend record, the company's relatively poor performance in recent years has pushed its forward yield to a juicy 5.2%. BMS has increased its payouts by 67.6% over the past decade, and currently boasts a modest cash payout ratio of around 35%.
Also, the stock's forward P/E of 7 makes it dirt cheap at current levels; the healthcare sector's average tops 16. Despite the headwinds it's encountered, Bristol Myers Squibb is still a buy for dividend seekers.
