Eric Volkman, The Motley Fool
5 min read
In This Article:
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Both a very familiar retailer and a high-profile restaurant chain operator are cranking their distributions higher.
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Opportunistic income investors have time to take advantage of both.
Early summer isn't typically a hot period for dividend raises, and this year's version is no exception. Lately, income investors have had to be satisfied collecting payouts that were fixed several quarters -- or even years -- ago.
Over the past few days, there emerged two major exceptions to this trend -- monster retailer Target (NYSE: TGT) and Darden Restaurants (NYSE: DRI), owner and operator of well-known dining chains such as Olive Garden, Ruth's Chris Steak House, and The Capital Grille. Here's a little more about both payout pumps.
Of the two dividend raises, Target's was the more predictable. That's because the company is a Dividend King, meaning it's one of the very select group of S&P 500 component stocks that has upped its payout at least once annually for a minimum of 50 years running. In mid-June, the company extended this streak to 54 years with a nearly 2% bump in its quarterly payout to $1.14 per share.
This particular dividend raise might be more necessary than previous lifts. A once-popular stock, Target has fallen out of favor, on the back of recent drops in certain fundamentals and other factors such as its poorly received retreat from diversity, equity, and inclusion (DEI) strategies. The uncertain future of President Trump's tariffs isn't helping either.
Target's latest quarterly earnings release didn't exactly inspire confidence in the market. First-quarter net sales fell by 3% year over year to a little under $24 billion on comparable sales that dipped nearly 4%, rare declines for a company that typically improves those metrics. Non-GAAP (generally accepted accounting principles) adjusted net earnings also headed south, falling a steep 36% to $1.30 per share.
To right the ship, management has created what's essentially a task force with its so-called "enterprise acceleration office." This unit is responsible for slimming the company's operations and making them more efficient, hence better positioned for (hopefully) a return to growth.
I'd give Target a better-than-average chance of this initiative succeeding. In its long life, it's gotten past many challenges, and besides, it's actually doing quite well in certain corners of its business. For example, there's online comparable sales, which even in this Age of Digital are continuing to grow at admirable rates -- nearly 5% in quarter one.
