Showing posts with label Target. Show all posts
Showing posts with label Target. Show all posts

Thursday, November 14, 2019

TGT sell call on WMT earnings

I like Target, symbol TGT.   Presented below is another example of how to use a rival's earnings to take a short term position before your company reports.   Walmart had good earnings but in the after market it is only o.k.  But WMT's business is perceived as being positive and that helps it's closest competitor Target.

Income investors are looking for a position that provides call premium income from selling (a.k.a. writing) a call; and we want the quarterly dividend; and we want a capital gain should we have our stock called away.

An eight day call that meets a number of an income investor's goals.

What happens if in the next 10 days or so the stock tanks on it's own earnings and you are stuck with it?  That is when you want to make sure you can stomach holding a dividend stock over a longer period of time than 10 days.  TGT is an okay hold by me at this time.  - Goal met:  conservative income investment.

I will risk losing it and I will risk keeping it.   It is all about income.  Goal met:  income with out without the call being assigned.  If it is assigned, capital gain is realized;  Goal met; capital gains.


Usually posts about calls are yesterday's news.  Call buyers and sellers know there are few values more volatile than call premiums.   I am writing up a call that I will try for tomorrow.  November 15, 2019.

M* MoneyMadam

Good income investing.   Disclosure no position but expect to add if the conditions warrant.

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Friday, December 1, 2017

Costco or Target - you decide

What an interesting decision. A lot of bloggers have recently weighed in on this conundrum.  I applied my Dividend Machine fundamentals to help decide which is the better stock for me.    But frankly that analysis made the decision no easier.  I will post the Dividend Machine data comparison at the end of this post.    

Business Model Differentiation

These two retailers differentiate their business by their business model.  Target is dependent on profit margins which are 3.8% right now.  Costco also has positive profit margins at 2.08% but Costco uses membership fees to fill their coffers. In 2016 COST pulled in $2.6 billion in membership fees.  These fees help to smooth out their revenue stream.  

Target, on the other hand, is totally dependent on making money through margins.  Target must make money on their merchandise and they are pretty good at it.  However, their sales are not growing.

For me, the real question is a trade off surrounding yield, revenue trends and value.

Dividend Yield

Dividend Yield would seem to be straight forward.  On first inspection, Target (TGT) wins with a yield of 4.38% versus Costco’s (COST) 1.09%.   However, over the past five years Costco has delivered three special dividends that are substantial.   

Will COST be able to continue this trend of special dividends?   If they do continue to accumulate cash and share it with investors through special dividends, their meager regular dividend yield looks more tolerable.

Take a look at Costco's and Target's quarterly cash & equivalents for the past 5 quarters.


Both stocks have increasing amounts of cash on their balance sheet. If you are paying for cash, you can see why COST is so much more expensive than TGT.

Revenue trends

Over the past few years, I have been using revenue trends prominently when working my income portfolio.   Sales drive revenues which drive the cash flow needed to pay dividends.   

A lot can happen on the way from revenue collection to dividend payout but without revenue, nothing will flow to the investor.  The table below presents a comparison of TGT and COST revenues.  



Clearly COST is the winner on this metric.  If this kind of revenue growth continues, future special dividends just maybe in the works.   TGT, on the other hand has stagnant revenues more like Walmart (WMT.)   However, you pay dearly for that revenue growth and that is where valuation comes into play.


Costco is expensive.  COST is up today based on recent earnings and a euphoric market.  COST sports a P/E ratio (price to earnings ratio) of 30.   Whereas, Target is considered cheap.  Target (TGT) interestingly is down today.  Current P/E ratio is 13.  This is quite a difference.   If COST has a bad quarter, the stock could take quite a hit.   However, without revenue growth, we are not going to see TGT stock price increase without some other catalyst.

The table below shows a few additional measures to take into consideration when looking at value. 

The metrics that stand out are Book Value and Peg Ratio.   Investopedia is the source of this definition of Book Value:  " It serves as the total value of the company's assets that shareholders would theoretically receive if a company were liquidated."

Target's book value as related to the cost of each share of stock ($60.91) is better than Costco's book value based on a share price of $183.45. is the source of this definition of PEG ratio:  "The PEG ratio is the Price Earnings ratio divided by the growth rate. The forecasted growth rate (based on the consensus of professional analysts) and the forecasted earnings over the next 12 months are used to calculate the PEG." Learn More

A low PEG ratio may indicate a stock is undervalued and higher PEG ratio can suggest over value.  To me, I am still confused as to which stock is better.

Debt to Equity Ratio

Readers of my blog know I place a lot of emphasis on balance sheet and I find D/E ratio one of the easier measures for ordinary investors to find and to understand.   Neither stock’s D/E is onerous like Home Depot’s D/E ratio of 12, but one is better than the other.

Industry average D/E ratio is .54.  Costco carries a D/E ratio of .61.  Target’s D/E ratio is 1.01.  Both stocks have the cash flow necessary to meet their obligations with neither company in danger of going belly up due to too much debt.

Dividend Machine Fundamentals Table

My Take

So here we are having to decide to buy an expensive low yield stock with the potential to deliver a big income payday or to buy a high yielding, cheap, slow growth stock (value trap.)    I am going to buy both, but I may wait for COST to correct after today’s significant rally.  Target has calls that will return 11% if called away so I will wade in with that strategy. 

Only you can decide what works for you.  I am an income investor and I like to be paid to wait.  I also like to juice my income with covered calls.  Oddly, the usual technique of selling calls to boost income is available on the faster growing, lower yielding stock.  That is not the case with COST versus TGT.  But again, nothing about this seems to be normal.

M* MoneyMadam

Disclosure:  Long TGT with calls:  expect to buy COST 

Posting note:  Bought TGT at $59.50 and sold January $62.50 call for $1.50. 

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Friday, November 10, 2017

Kohl's or Target which call is better for income investors

I invest for income.  I need a dividend; I need a dividend that grows; I like low risk of bankruptcy and I love covered calls.   Not a unique strategy.   Many successful investors who live off of their portfolio income invest with a similar strategy.

In the retail space, we find low valuations and quite a bit of volatility.  Everybody has an opinion and it can change on a dime.  I named Kohl's, symbol KSS, as my first Dividend Machine pick for 2017 and it has been up and down.  Most significantly, though, is the cash it spins off to me through the dividend and through calls.

Target is a similar story.   In the charts below, you can see that Kohl's has a better call than Target.

Moreover, Kohl's has a higher dividend than Target:  KSS = 5.39%  yield TGT = 4.25% yield.
Kohl's most recent dividend increase is better:  KSS = 10% dividend increase TGT = 3.33% dividend increase.
Kohl's is a bit cheaper using P/E ratio:  KSS = 11.3 P/E ratio TGT = 12.26 P/E ratio.
Percent of earnings paid out in dividends is again won by KSS:  KSS 50% payout ratio TGT = 61.2% payout ratio.
Lastly, KSS beats TGT on D/E (debt to equity ratio):  KSS = .5561 D/E ratio TGT = 1.103 D/E ratio.

Put it all together and KSS is a nice stock in a volatile space that will reward the income investor with high dividend yield, robust dividend growth, and covered call option opportunity.

M* MoneyMadam
Disclosure:  long KSS with calls long TGT

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Sunday, July 27, 2014

Dividends & Income TGT - Target should you buy it?

Sunday evening is a good time to look for stocks for income.   Once I find a stock that meets all four of my Dividend Machine criteria, I profile it here on my blog and I quite often invest in the stock myself.

Often times I can go through 20 stocks and find nothing.  But today it took only three. 

Stocks that did not make the grade.
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Tuesday, August 2, 2011

Almost Dividend Machine Target, symbol TGT

This is a row of Cash Registers at a Target st...Image via Wikipedia          Target comes and goes in my portfolio.  TGT pays an ever increasing dividend and has earnings nearly four times the payout.  Their debt to equity ratio is 1.00 which is the upper limit for a company in my income portfolio.    Target is not quite a dividend machine because the dividend yield is only 2.42%.  However, as readers of this blog know, I often use almost dividend machines that have call options to goose my income.
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