Target vs. Walmart: Which Retail Giant Offers Better Dividend Returns?

Dividend investing is a cornerstone of many investors’ portfolios, providing a steady income stream and long-term growth potential. Blue-chip stocks are among the most stable and safest investments, but a select few companies excel in maintaining their financial growth and paying consistent, high-yield dividends to investors.

In the realm of blue-chip retail giants, Target Corporation (TGT) and Walmart Inc. (WMT) stand out as formidable players with excellent dividend growth histories. Through strategic investments and acquisitions, robust financial health, and a solid commitment to customer satisfaction, these companies have managed to thrive and offer reliable dividend payouts.

Let’s compare TGT and WMT’s dividend yields, growth rates, and overall financial health to help investors determine which stock offers better dividend potential.

Target Corporation (TGT)

With a $68.17 billion market cap, Target Corporation (TGT) is one of the leading retail corporations in the U.S. that offers a wide variety of products at competitive prices through its extensive network of stores and e-commerce platform, Target.com.

In March, the Minneapolis-based retailer announced plans to invest in its guest experience and long-term growth. The reintroduced Target Circle loyalty program will provide three new membership options, including a free-to-join option, allowing guests to choose how to shop and save. Target Circle has already become one of the largest loyalty programs in retail, with over 100 million members saving millions of dollars annually.

Also, this year, TGT plans to launch and expand its owned brands to offer various options across categories, products, and prices, such as dealworthy, up&up, and Gigglescape. Moreover, Target-owned brands offer quality, value, and innovation, driving more than $30 billion in sales in 2023. Further, the company will invest in the store-as-hubs model over the next decade, planning to build more than 300 new stores and enhance supply chain operations.

Despite significant investments in improving its customer experience and store presence, Target has shown resilience in maintaining a robust financial position. For the first quarter that ended May 4, 2024, TGT’s sales decreased 3.2% year-over-year to $24.14 billion. However, digital comparable sales rose 1.4% year-over-year, and same-day services grew about 9%, led by over 13% growth in Drive Up. It reported net earnings of $942 million, or $2.03 per share, respectively.

As of May 4, 2024, the company’s cash and cash equivalents were $3.60 billion, compared to $1.32 billion as of April 29, 2023.

“Looking ahead, our team will deliver for our guests through lower prices, a seasonally relevant assortment, ease and convenience, as we keep investing in our strategy and efficiency initiatives to get back to growth and deliver on our longer-term financial goals,” said Brian Cornell, chair and chief executive of Target Corporation.

For the second quarter of 2024, Target expects a 0-2% rise in its comparable sales and adjusted EPS of $1.95-$2.35. For the full year, the company projects a 0-2% increase in comparable sales and adjusted EPS of $8.60 to $9.60.

TGT’s solid financial performance and stability translate into attractive returns for investors. During the first quarter, the company paid dividends of $508 million, compared with $497 last year, an increase of 1.9% in the dividend per share.

On March 13, Target’s Board of Directors declared a quarterly dividend of $1.10 per common share, payable June 10, 2024, to shareholders of record at the close of business on May 15, 2024. This will be the company’s 227th consecutive dividend paid since October 1967, when it became publicly held.

TGT pays an annual dividend of $4.40, which translates to a yield of 2.92% at the current share price, which is quite attractive for income-focused investors, providing a solid return on investment. Its four-year average dividend yield is 2.18%. It maintains a payout ratio of around 50%, indicating that the company distributes half of its earnings as dividends, balancing shareholder returns with reinvestment in business growth.

Additionally, Target has a commendable history of consistently increasing its dividend payouts. The company’s dividend payouts have grown at a CAGR of 17.4% over the past three years and 11.4% over the past five years. Notably, TGT has raised its dividends for 55 consecutive years.

In addition to solid dividend growth, Target has demonstrated impressive performance in stock price appreciation. TGT’s stock has gained more than 10% over the past six months and nearly 12% over the past year.

Walmart Inc. (WMT)

With a market capitalization of $540.73 billion, Walmart Inc. (WMT) engages in retail and wholesale business, offering an assortment of apparel, footwear, general merchandise, and groceries at everyday low prices.

Walmart expanded its popular InHome delivery service to an additional 10 million U.S. households, including those in California. In addition to the San Bernardino market, the company expanded its service to include customers in Boston, Detroit, Minneapolis, and Philadelphia, bringing the total scale to more than 50 markets covering about 45 million U.S. homes.

In February, WMT announced an agreement to acquire VIZIO, a prominent American company known for manufacturing consumer electronics. The strategic acquisition of VIZIO and its SmartCast Operating System (OS) will allow Walmart to serve its customers in new ways, including through innovative television and in-home entertainment and media experiences.

Further, this combination is anticipated to boost Walmart’s media arm in the U.S., Walmart Connect, by integrating VIZIO's advertising solutions business with Walmart's extensive reach and capabilities.

WMT, the world’s largest retailer, boasts a robust financial position with steady revenue growth and a solid balance sheet. During the first quarter that ended April 30, 2024, the retailer’s total revenues increased 6% year-over-year to $161.50 billion. Moreover, its global e-commerce sales were up 21%, driven by store-fulfilled pickup & delivery and marketplace.

In addition, the company’s adjusted operating income was $7.10 billion, up 13.7% from the year-ago value, due to higher gross margins and growth in membership income. Its adjusted EPS rose 22.4% year-over-year to $0.60. As of April 20, 2024, WMT’s cash and cash equivalents were $9.40 billion.

Looking ahead, the company expects net sales to increase by 3.5% to 4.5% and operating income to rise by 3% to 4.5% in constant currency (cc) for the second quarter. For the full year, it anticipates to be at the high-end or slightly above its prior guidance (cc) for net sales growth of 3%-4% and operating income growth of 4%-6%.

Walmart’s extensive global footprint and solid financial health provide a stable foundation for continued, attractive dividend payouts. In February, WMT’s Board of Directors declared an annual cash dividend for the fiscal year 2025 of $0.83 per share on a post-stock split basis. It represents a nearly 9% increase from the $2.28 per share paid in fiscal 2024.

“Dividends continue to be a part of our diversified capital returns approach. We're proud to be increasing our annual dividend for the 51st consecutive year. This year’s 9 percent increase is the largest in over a decade, and a sign of our confidence in our growth potential and cash flow,” stated John David Rainey, executive vice president and chief financial officer at Walmart.

WMT’s annual dividend of $0.83 translates to a yield of 1.24% at the prevailing share price. While lower than Target’s yield, the company still provides a steady income stream for investors. Its four-year average dividend yield is 1.53%. Also, it maintains a payout ratio of 33.46%.

Moreover, the company’s dividend payouts have grown at a CAGR of 3% over the past three years and 2.6% over the past five years. Walmart has a consistent history of annual dividend increases, albeit at a slower growth rate than Target.

Shares of WMT have surged nearly 28% over the past six months and more than 34% over the past year.

Bottom Line

Both TGT and WMT represent formidable investment opportunities with robust dividend credentials and solid fundamentals, making them worthy considerations for income-focused investors seeking exposure to the retail sector. However, while comparing Target and Walmart’s dividend potential, Target emerges as the frontrunner, offering a higher dividend yield and a track record of robust dividend growth.

So, TGT is a relatively more attractive investment option for those seeking better dividend potential within the retail industry.

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