But can investors rely on the hefty yield while they wait for the stock price to recover?

In fiscal 2024, which ended in February, free cash flow actually increased due to a sharp reduction in capital expenditures (or “capex”) despite declining revenue and profits.

Cash flow from operations fell from $8.6 billion to $7.4 billion in fiscal 2024, but a 40% cut in capex boosted free cash flow by 17% from $3.8 billion to $4.5 billion.

In fiscal 2025, which ends this coming February, capex is forecast to rise by more than $1 billion, which will reduce free cash flow to $2.5 billion.

In fiscal 2024, Target paid $2 billion in dividends for a very comfortable payout ratio of 46%. This year, the retail giant is forecast to pay a little over $2.1 billion. With drastically falling free cash flow, the payout ratio jumps to an uncomfortable 87%.

However, Target has an incredible dividend-paying history. It has raised its dividend every year since 1972. I was still watching Sesame Street back then.

Since the company is a member of the S&P 500 and has raised its dividend for more than 25 years in a row, it is considered a Dividend Aristocrat, which is a prestigious label that attracts income investors.

Target’s numbers are all going in the wrong direction. Free cash flow is down over the past three years and is expected to fall sharply this fiscal year. As a result, the payout ratio in fiscal 2025 is now projected to be above my 75% threshold.

It’s becoming more difficult for Target to afford its dividend.

I suspect that the five-and-a-half-decade run of annual dividend increases is pretty important to management and they’re going to do what it takes to continue to boost the payout to shareholders.

But if free cash flow continues to deteriorate, Target may have a tough decision to make regarding that very long and impressive dividend-hiking track record.

I don’t suspect a dividend cut is imminent, but given the company’s cash flow situation, the payout can’t be considered safe – even for a Dividend Aristocrat.

Dividend Safety Rating: D

What stock’s dividend safety would you like me to analyze next? Leave the ticker in the comments section.

You can also take a look to see whether we’ve written about your favorite stock recently. Just click on the word “Search” at the top right part of the Wealthy Retirement homepage, type in the company name, and hit “Enter.”

Also, keep in mind that Safety Net can analyze only individual stocks, not exchange-traded funds, mutual funds, or closed-end funds.

The post Is This Dividend Aristocrat’s Payout in Jeopardy? appeared first on Wealthy Retirement.

Target pays a $1.08 per share quarterly dividend, which comes out to a 2.65% annual yield.

So will the dividend walk out the door along with the stolen merchandise?

Free cash flow in fiscal 2023 (ending January 31, 2023) is expected to be more than cut in half, dropping to $2.27 billion from $5.08 billion. It is forecast to recover in fiscal 2024 (ending January 2024), though still not to the level that it was at in fiscal 2021.

If fiscal 2023’s free cash flow comes in at $2.27 billion – where it is expected to be – and dividends paid also matches projections at $1.73 billion, then the payout ratio will be above 76%, which is not in my comfort zone. I like to see payout ratios of 75% or lower. That way, there is still room for the company to pay the dividend even if free cash flow declines further.

Safety Net penalizes companies that have falling free cash flow and a payout ratio above 75% – so those things are concerning.

On the other hand, Target has an incredible track record when it comes to paying and raising its dividend. The company has lifted the dividend every year for 54 years.

It was the “Summer of Love” when Target started raising its dividend. Richard Nixon was president. “Build Me Up Buttercup” by The Foundations was the No. 1 song in the U.S., and the top movie was Funny Girl with Barbra Streisand. That was a long time ago, and it’s impressive that Target has consistently raised its dividend every year since 1969.

Given that amazing history, I don’t expect the dividend to be cut anytime soon, despite the mediocre dividend safety rating. I think management will run through fire to preserve it.

That being said, the financials are deteriorating, so it’s worth keeping an eye on. The dividend isn’t likely to be reduced in the near future, but if free cash flow doesn’t recover next year, we’ll have to revisit it.

Have a wonderful Thanksgiving. I’m thankful that you’re a Wealthy Retirement reader. Enjoy the holiday.

Dividend Safety Rating: C

If you have a stock whose dividend safety you’d like me to analyze, leave the ticker in the comments section.

Good investing,

Marc

The post Can Target Afford Its Dividend After Putrid Earnings? appeared first on Wealthy Retirement.

Long term, demographics practically ensure that the sector will remain healthy (pun intended) for years to come. On average, some 10,000 baby boomers turn 65 every day. A few decades from now, when the baby boomer population has dwindled, the next large population group (millennials) will be middle-aged.

Short term, few sectors have the ability to produce such strong gains as healthcare, particularly small cap biotechs. But with these types of companies, it’s easy to break one of investing’s cardinal rules: Don’t fall in love with a stock.

My brother works in the movie industry. Sometimes he’s under a lot of pressure. When he feels stressed, he reminds himself, “You’re either curing cancer or not curing cancer.” In other words, people won’t die if his project isn’t successful.

When you invest in small cap biotech stocks, you’re often investing in companies that are trying to cure cancer, diabetes or a rare but fatal disease. The work that these companies do is important.

If you buy shares of a stock like Target (NYSE: TGT), of course you want the company to prosper. And if Target’s sales are strong, it will employ more people and help grow the economy. All good things. But let’s face it, you probably don’t get that excited about the same-store sales report each month.

But when you invest in a small biotech, it’s different. It’s easy to become emotionally attached.

For example, consider a company like TG Therapeutics (Nasdaq: TGTX), which is developing therapies for treating leukemia. You want the company to succeed, not only for your own monetary gain but because of the impact it could have on tens of thousands of lives.

If things go wrong with some of these companies, like when their drug is rejected by the Food and Drug Administration or their clinical trial data is weak, investors often make excuses and justify why they should stay in the stock, even if they have a large loss and the medical studies say the drug clearly doesn’t work.

And when things go right, they can go right in a hurry.

Last January, Novavax Inc. (Nasdaq: NVAX) spiked 64% in one day on news that a clinical trial showed that its COVID-19 vaccine was safe and effective. A few days later, the stock was 148% higher than where it was before the announcement.

Investors who were able to ride the stock to its new high should have checked their emotions at the door and set a trailing stop.

I recommend a 25% trailing stop on most stocks. That means, as the stock goes higher, you adjust your stop higher. When Novavax hit its high at $331.68, an investor who set a 25% trailing stop would have gotten out at $248.76, saving themself about 86 points in regard to where it’s trading today.

It would have been easy to get caught up in the emotion of rooting for a company that is developing a vaccine during a pandemic. It makes sense to cheer for a product that can be beneficial to so many people.

But setting a stop 25% below the high would have taken the emotion out of the trade and forced the sale of the stock at $248.76. Even if the investor was very hopeful that the vaccine was going to save lives and be the next big thing in fighting this pandemic, the stop would have taken them out of the position and saved them a lot of pain when Novavax fell below $250 and then $200.

Using a stop removes the emotion from investing, which is always important – but especially so when investing in an emotional sector like biotech.

Good investing,

Marc

The post Emotions Wreak Havoc on Healthcare Investments appeared first on Wealthy Retirement.

ESG (environmental, social and governance) investing, a descendant of ethical investing, isn’t just for hippies and optimists anymore…

In fact, as Chief Income Strategist Marc Lichtenfeld uncovers in this week’s episode of his YouTube series State of the Market, ESG investing has gone mainstream…

So much so that it now accounts for one-third of all managed U.S. investments.

That’s because ESG strategies aren’t just good for the environment, good for workers and good for leadership – they’re also good for business.

Just look at how funds of companies that focus on these principles stacked up against the broader S&P 500 during the coronavirus crash…

Many of them trounced the broader market, some of them even soaring close to 20% amid one of the most devastating market events in history.

The data shows that initiatives like climate-friendliness, fair treatment of workers and executive suite diversity aren’t just “nice to haves” in 2020.

Instead, experts are wary of the risks of not implementing these strategies.

As Marc explains in this week’s video, “Companies that are conscientious about the environment are less likely to have big spills or leaks, less likely to pay fines for running afoul of regulations, and more likely to have technology that saves money over the long term.”

And the benefits for investors don’t stop with the stock market…

In 2016, Barclays found that bonds of companies that prioritize ESG principles perform better.

They appreciated in price and avoided credit downgrades more often than their low-ESG counterparts.

This week, Marc reveals three companies that score highly on ESG rankings…

But you can also check your portfolio’s ESG risk for yourself.

MSCI has pioneered the ESG Ratings Corporate Search Tool that investors can use to check how the companies they invest in manage issues that are important to the world today.

For instance, I looked up popular consumer goods holding Target (NYSE: TGT).

I discovered that on a score ranging from CCC to AAA, the company has been able to improve from a score of BB to a score of A in just four years.

That places the company in the middle of its industry peers.

According to MSCI, while the company leads in areas like chemical safety and corporate behavior, it falls behind in labor management.

Consider using the tool to check the ESG ratings of your own holdings – because as this year has shown, it is more important for companies to adhere to these principles than ever.

And as always, don’t miss Marc’s groundbreaking weekly State of the Market video. This week, he’ll discuss why ESG has become popular…

How it stacks up against the broader market…

And what three companies he tracks have the best ESG scores.

Click here to see Marc’s latest video now.

Good investing,

Mable

The post Why It’s Time to Consider ESG Investing appeared first on Wealthy Retirement.