I just do not understand, given what has happened to those recently who have opened their mouths, why someone would do this.
Target’s (TGT) CFO said earlier this week the company could potentially pay a higher dividend, following an increase to the payout last year. “I clearly think that there’s room to increase the dividend,” Chief Financial Officer Doug Scovanner said at a conference broadcast on the Internet. But he added: “I do not believe that we are likely to fundamentally alter the dividend yield in any abrupt kind of way.”
Last June, Target increased its quarterly dividend by 2 cents per share to 14 cents per common share for a current yield of 1%.
Target has been using excess cash to buy back shares as part of a $10 billion share repurchase plan announced in November after agitation from Bill Ackman. It has said it expects to complete half or more of the stock buyback program by the end of the year.
Why is even talking about a dividend that yield 1%? It is out there now. Because you were ambiguous about it, people will want it increased and will be upset when you do not deliver. Why create an issue over a 56 cent annual payout? Now, admittedly this is not a onerous as a earnings “guarantee” but the fact that hew did not dismiss it, and actually gave it credibility will give it life.
If that is not in the plans, just say so. Dismiss it, put it to bed, and move one. Do not let it linger for people to run with.
Anything short of doubling the dividend keeps it insignificant for shareholders, ignore it. To be honest, they would probably do better by shareholders by scrapping the stupid thing and using the same cash to repurchase shares. I mean 1%?
Think about it. Target will spend about $460 million this year on dividends. At current prices they could use that to repurchase 8.2 million shares of 1% of the outstanding total. I would argue doing that each year would benefit shareholder more than a 1% yield will. Now, as they continue to repurchase the shares, that same money would by incrementally more of the outstanding number on a percentage basis.
There is a reasons that investors like Ackman, Lampert and Berkshire’s (BRK.a) Buffett never talk about 1% yields when talking about investing. There are better uses for the cash.
Disclosure (“none” means no position):None
