We recently compiled a list of the 10 Undervalued Dividend Aristocrats To Buy According to Hedge Funds. In this article, we are going to take a look at where Target Corporation (NYSE:TGT) stands against the other undervalued dividend aristocrats to buy according to hedge funds.
A dividend aristocrat is an S&P 500 company that not only maintains regular dividend payments to shareholders but also increases its payouts annually. To qualify as a dividend aristocrat, a company must raise its dividends consistently for at least 25 consecutive years.
Michael Clarfeld, Portfolio Manager at ClearBridge, recently talked about why companies that consistently grow their dividends are well-positioned to handle the challenges of 2025. With rising costs, tighter margins, higher interest rates, and inflation on the horizon, Clarfeld is still optimistic about the economy. He pointed to strong employment numbers, upbeat consumer sentiment, and confident businesses, especially after the election. Pro-business policies under the Trump administration could drive investments and growth, which sounds great, but there’s a catch. For instance, bringing manufacturing back to the US would create jobs and boost wages, but it could also increase business costs. After two strong years, Clarfeld doesn’t see much room for big capital gains in 2025. Plus, with inflation sticking around, the Federal Reserve is likely to take a more cautious approach. That said, he sees opportunities in sectors like European and global consumer staples and US energy infrastructure.
Clarfeld is a big fan of dividend growth stocks, calling them a timeless investment. They can act as a safety net during volatile markets and provide steady income, which is especially useful when capital appreciation feels out of reach. He also highlighted how dividends help protect your purchasing power by keeping up with inflation. In his view, dividend growth is a smart and reliable strategy for navigating a potentially bumpy 2025.
Paul Baiocchi of SS&C ALPS Advisors sees dividend investing as a smart move, expecting the Fed to ease rates. According to Baiocchi, investors are shifting from money markets and fixed income to dividend-paying stocks, especially companies with leverage that could benefit from lower interest rates. Similarly, Mike Akins of ETF Action also sees dividend ETFs as a defensive play, highlighting that the companies included typically have strong balance sheets. He notes the growing popularity of dividend-focused ETFs, suggesting that consistent dividends give investors confidence in a company’s stability and financial health. Both experts agree that dividends offer a sense of durability and drawdown protection in uncertain markets.
A woman purchasing groceries at a Target store, with a cart full of products.
In this article, we selected stocks from the Dividend Aristocrats List that had a P/E ratio below 20 as of December 23. Our focus was on identifying stocks with the strongest hedge fund sentiment in Q3 2024 among the 66 Dividend Aristocrats that also met our P/E criteria. The stocks are ranked below in ascending order based on the number of hedge fund holders for each company.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Dividend Yield as of December 23: 2.87%
Number of Hedge Fund Holders: 49
P/E Ratio: 13.94
Target Corporation (NYSE:TGT) is an American legacy company that offers a wide range of merchandise, including clothing for all ages, beauty products, home essentials, pet supplies, groceries, electronics, toys, furniture, and seasonal items.
Target Corporation (NYSE:TGT)’s Q3 results reflected a mix of growth and challenges. Comparable sales rose 0.3%, at the low end of expectations, while EPS fell short due to cautious consumer spending on discretionary items and cost pressures. Guest traffic grew by 2.4%, but a 2% drop in average ticket size offset gains, reflecting tighter household budgets. October saw stronger sales, boosted by Target Circle promotions, although discretionary categories remained soft. Digital sales were a highlight, growing 10.8%, with same-day delivery up nearly 20% and Drive-Up and ship-to-home services showing double-digit growth. Target’s Roundel ad business also grew by 11.5%, contributing to revenue and margins. Despite these successes, operating margins fell to 4.6%, down 60 basis points, due to higher supply chain and digital fulfillment costs.
Year-to-date, Target Corporation (NYSE:TGT) invested nearly $2 billion in capital expenditures as per the Q3 earnings call, focusing on new stores, remodels, and tech projects, with 2025 CapEx projected at $4-$5 billion. Dividends increased to $516 million in Q3, and $354 million was allocated to share repurchases. The company paid a $1.12 per share dividend to stakeholders on December 10. In 2024, Target marked the 53rd straight year of raising its annual dividend, making it one of the best dividend aristocrat stocks on our list.
Target Corporation (NYSE:TGT) expects Q4 comparable sales to remain flat due to discretionary softness and fewer holiday shopping days. Full-year EPS guidance was revised to $8.30–$8.90, reflecting these challenges. Despite short-term hurdles, the company remains optimistic about long-term growth, confident in its strategy and ability to deliver solid financial performance over the next decade.
TGT is a hedge fund favorite, with 49 funds holding stakes in the company at the end of Q3 2024. Ric Dillon’s Diamond Hill Capital is the leading stakeholder of Target, with 2.95 million shares worth $460.3 million.
Overall, TGT ranks 3rd on our list of the undervalued dividend aristocrats to buy according to hedge funds. While we acknowledge the potential of TGT to grow, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TGT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
