Target Has a Growing Dividend and an Improving Business. Is the Stock a Bargain?

Target Corporation (NYSE:TGT) is starting to look like a retailer that has finally turned a corner. After a difficult stretch, shoppers are coming back, digital sales are picking up, and management has become more confident about the year ahead.

The question for investors is no longer whether Target can recover. The more interesting question is whether the stock still offers enough upside now that the recovery is becoming visible in the numbers. The latest quarter gives investors plenty to work with. The company’s second-quarter 2026 net sales increased 5.3%, while comparable sales rose 3.8%. Traffic was up 3.6%, and digital comparable sales grew 8.7%. Same-day delivery was particularly strong, increasing more than 25%. All six of Target’s core merchandising categories also posted growth.

That is important because Target needs more than higher prices to get the business moving again. It needs people to actually visit its stores and shop more often. The latest numbers suggest that is beginning to happen. Moreover, the company’s improving fundamentals have helped fuel its rally, but that raises a bigger question for investors: has the stock already priced in much of the turnaround? 

Target’s Real Advantage Isn’t Just Its Stores

Target Corporationdoes not have Walmart’s scale or Costco’s membership model. Its competitive edge is more subtle. The company has built a brand that sits somewhere between traditional discount retail and more aspirational shopping. Customers can find everyday necessities at Target, but the experience feels different from simply walking into a warehouse-style retailer.

Its more than 2,000 stores are another important piece of the equation. They are not just retail locations anymore. They also support online fulfillment and same-day services, allowing the company to combine its physical footprint with the convenience consumers increasingly expect from digital shopping.

Target is also finding ways to make money beyond selling merchandise. Non-merchandise revenue increased more than 20% in the latest quarter, helped by businesses such as Roundel advertising, Target Circle 360 memberships, and the Target+ marketplace. None of these advantages is impossible for competitors to copy. The strength comes from having all of them working together. Target has a recognizable brand, a large store network, digital capabilities, and additional revenue streams that can make each part of the business more valuable.

Also read: 10 Best Dividend Stocks to Buy for Passive Income

The Turnaround Is Getting More Credible

Target Corporation has also been willing to sacrifice some margin to bring shoppers back. Over the past year, the company cut prices on more than 10,000 frequently purchased products. That puts pressure on profitability, but the strategy appears to be helping traffic and sales.

Management now expects 2026 net sales to increase by around 5%, while adjusted EPS is expected to come in between $9.90 and $10.90. The company also reported a 20% year-over-year increase in adjusted EPS in the second quarter, excluding the impact of the tariff refund. There is still plenty that could go wrong. Retail is fiercely competitive, and consumers remain sensitive to prices. But the latest results are encouraging because the improvement is showing up across several parts of the business rather than coming from one isolated factor.

The Dividend Adds Some Patience to the Story

For income investors, Target offers another reason to stick around while the turnaround plays out. The company raised its quarterly dividend by 1.8% to $1.16 per share in June 2026. That puts Target on track for its 55th consecutive year of dividend increases. The forward annual dividend is currently $4.64, giving the stock a yield of roughly 3%. The payout ratio is around 47%, which offers a useful combination. Target is returning a meaningful amount of cash to shareholders without committing most of its earnings to the dividend.

At the same time, the yield is not unusually high compared with Target’s own history. Its five-year average dividend yield is around 2.98%. So the dividend is attractive, but it does not suggest that the stock is deeply discounted on an income basis. In addition, there is another piece of the puzzle: how much the retailer needs to spend to keep its turnaround going. Find here.

The Valuation Has Already Recovered Some Ground

This is where the investment case becomes less straightforward. Target currently trades at about 15.62 times forward earnings, compared with a trailing P/E of 16.50. The lower forward multiple suggests analysts expect earnings to improve over the coming year.

At 15.62 times forward earnings, the stock has a forward earnings yield of roughly 6.4%. That is more than twice its approximately 3% dividend yield. The difference matters because the remaining earnings are available to support reinvestment, debt reduction, buybacks, or future dividend increases.

The bigger issue is what investors are paying for that earnings recovery. Target’s forward P/E was about 11.59x in October 2025 and 13.51x in January 2026. It then climbed to 16.21x in April and 17.70x in July. The current 15.62x multiple therefore sits well above the levels seen when sentiment around the company was much weaker. In other words, Target is no longer being valued like a retailer in the middle of a crisis.

The Stock Needs Earnings to Do the Heavy Lifting Now

That does not mean Target is expensive. A forward P/E of roughly 15.6x is still reasonable if the company’s earnings recovery continues. Management has raised its outlook, traffic is improving, digital sales are growing, and the business is seeing broader strength across its merchandise categories.

But the easy part of the valuation story may already be over. When a stock moves from roughly 12x forward earnings toward 16x, investors can make money simply because the market becomes more optimistic. From here, that becomes harder. Further upside will increasingly need to come from actual earnings growth.

That leaves Target in an interesting position. The brand and store network give it a competitive foundation, the dividend provides a nearly 3% income stream, and the valuation is still reasonable compared with many consumer companies. However, the stock is no longer a forgotten value play. The turnaround has raised expectations, and Target now has to deliver on them.

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This article is originally published at Insider Monkey.