Big-box retailer Target (TGT +0.24%) is going through tough times at the moment. The company is operating in turnaround mode and the jury is out on Target's chosen strategy. As a result, Target's stock price is down 40% over the last year as of August 8. At the same time, the lower share price gives "Tar-zhay" investors the richest dividend yields in history.
So let's say you want to generate $1,000 in annual dividend payouts. How many Target shares would you need to buy, assuming that the retailer's dividend yield holds firm at 5%?
NYSE: TGT
Key Data Points
Basic dividend math
Let's do some math. Don't worry, it's pretty easy stuff.
This dividend king recently increased its quarterly payout from $1.12 to $1.14 per share. That's $4.52 per year, per share.
Generating $1,000 per year with this dividend payout requires 222 Target shares in your portfolio. To get there, I divided $1,000 by $4.52, resulting in approximately 221.2. I'm not looking at fractional shares here, so let's get over the goal line by rounding up to 222 full Target shares.
At the current price of $91.50 per share, that's a total Target investment of $20,313. It's chump change for some investors but a large position for others. Either way, this 222-share investment will produce $1,003.44 of dividend payouts over the next four quarters.
Image source: Getty Images.
Payouts should rise over time
The payout isn't written in stone, of course. But it's very likely to keep rising in the long haul.
Target has increased its dividend payments in each of the past 54 years, though some of the boosts have been largely symbolic. That shareholder-friendly policy is likely to continue for years to come. Nobody likes dividend cuts or halted streaks, after all. Hence, your effective dividend yield should rise over time -- albeit slowly in lean times.
As long as you're holding on to the 222 Target shares you bought, you will have locked in an effective yield of 5% on your original investment. The only way is up, unless Target's troubles grow worse.
