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Are You Looking for a High-Growth Dividend Stock?

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Target in Focus

Target (TGT) is headquartered in Minneapolis, and is in the Retail-Wholesale sector. The stock has seen a price change of 1.97% since the start of the year. The retailer is paying out a dividend of $1.1 per share at the moment, with a dividend yield of 3.03% compared to the Retail - Discount Stores industry's yield of 1.11% and the S&P 500's yield of 1.57%.

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Taking a look at the company's dividend growth, its current annualized dividend of $4.40 is up 0.9% from last year. Over the last 5 years, Target has increased its dividend 5 times on a year-over-year basis for an average annual increase of 15.40%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Target's current payout ratio is 49%. This means it paid out 49% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, TGT expects solid earnings growth. The Zacks Consensus Estimate for 2024 is $9.37 per share, which represents a year-over-year growth rate of 4.81%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, TGT is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).

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