When it comes to investing, Dividend Aristocrats hold a special allure. These are S&P 500 Index ($SPX) companies that have consistently increased their dividends for at least 25 years, demonstrating strong financial stability and commitment to rewarding their shareholders. Currently, two of these prestigious companies, The J.M. Smucker Company (SJM) and Target Corporation (TGT), seem to be offering particularly attractive investment opportunities.
SJM and TGT aren't exactly rookie players in their industries, and they offer consistent dividends with the potential for some serious growth. Plus, they're currently trading below their average price targets and have forward P/E ratios that are lower than the typical company in their sectors.
For investors who love a good value or are all about that income, this is a rare chance to scoop up shares of these blue-chip companies while they're still on sale. So, let's take a closer look at why these two Dividend Aristocrats might be worth adding to your portfolio before the price tags go back up.
The J.M. Smucker Company
The J.M. Smucker Company (SJM) has been around since 1897, and is a big player in the food and beverage industry. It has some pretty well-known brands under its belt, like Smucker's, Jif, and Folgers, which has helped it make a name for itself in the consumer staples world.
SJM's stock is currently trading just below the $120 level. Although it's underperformed over the past year (down 17.4%) and year-to-date (down 5.5%), things are starting to look up. In fact, the stock has rallied more than 13% off its late June lows.
With a market cap of $12.71 billion, the packaged foods giant still has some very attractive valuation numbers. Notably, Smuckers is valued at a forward price-to-earnings (P/E) ratio of 11.93, considerably lower than the sector median P/E of 17.54. This suggests that the company is potentially undervalued compared to its peers, offering a promising investment opportunity.
One thing that really stands out about SJM is its commitment to keeping shareholders happy. They've been increasing their dividend for 27 years straight, and they just recently bumped up their payout by another 2%, from $1.06 to $1.08 per share. Plus, with an annual dividend yield of 3.61%, investors can expect a payout that surpasses the S&P average. The company's strong cash flow generation means it can keep investing in growth and rewarding shareholders at the same time.
In its latest earnings report, SJM posted quarterly net sales of $2.2 billion, a slight dip of 1% compared to last year. However, if you take out the impact of acquisitions, divestitures, and foreign currency, sales grew by 3%. The company saw strong demand across the board, especially in pet food and coffee, but it also had to deal with some higher costs due to inflation.
Despite these challenges, adjusted earnings per share still managed to grow by 1% to $2.66. Looking ahead, SJM is projecting some pretty solid growth, with net sales expected to increase by 9.5% to 10.5% in fiscal year 2025 and adjusted earnings per share landing somewhere between $9.80 and $10.20.
SJM has been making smart moves lately, like expanding its partnership with Acosta Group to boost its sales and marketing presence in North America. This should help the company strengthen its position in the market and drive growth across different channels. Plus, with that recent 2% dividend increase, it's clear that SJM is still dedicated to creating value for shareholders.
Analysts are bullish on SJM, giving it a “moderate buy” rating overall and an average target price of $128.33. Out of the 13 analysts covering the stock, five are saying it's a “strong buy,” while eight recommend a “hold.”
Target Corporation
Target (TGT) is a dominant name in the retail industry, known for selling everything from clothes and electronics to groceries and home goods. They've got a winning formula that combines brick-and-mortar stores with a robust online presence, all focused on making shopping a breeze for customers.
Over the past year, TGT has shown some serious grit, bouncing back from October's 52-week low of $102.93 to score a gain of more than 13%. Sure, 2024 has been a bit of a bumpy ride, with the stock slightly negative year-to-date, but that just means there might be a chance for investors to snag some shares at a bargain price.
With a market capitalization of around $62.8 billion and a forward P/E ratio of 14.54, which is a healthy discount to the sector median P/E of 17.54, TGT appears to be undervalued.
Another thing that makes TGT pretty attractive is its juicy 4.40% annual dividend yield. The company just bumped up its quarterly dividend to $1.12, marking an impressive 53 years in a row of dividend growth - making it not just a Dividend Aristocrat, but a Dividend King.
In its most recent earnings report, Target posted total revenue of $24.5 billion, down 3.1% from last year, mostly because of lower sales volume. The company's adjusted EPS for the first quarter came in at $2.03, just shy of forecasts.
Looking ahead, Target is expecting comparable sales to be flat or up to 2% for the year, with EPS landing somewhere between $8.60 and $9.60. The company's next earnings report is due out before the market opens on Aug. 21, so investors should be aware of the potential for short-term volatility in TGT shares around this event.
Target's been making smart moves lately, like teaming up with Shopify (SHOP) to expand its online marketplace, Target Plus, with a handpicked selection of new brands and products. They're also rolling out a new AI tool called Store Companion in all their stores, which should help things improve efficiency and make shopping even better for customers.
Analysts are upbeat on TGT overall, with most giving it a “moderate buy” rating. Out of the 31 analysts covering the stock, 16 say it's a “strong buy,” 3 call it a “moderate buy,” 11 recommend a “hold,” and just one thinks it's a “strong sell.” The average target price is $173.30, which suggests the stock could climb about 22% from where it is now.
Conclusion
In a market where top-quality stocks seem to very rarely go on sale, both The J.M. Smucker Company and Target Corporation present some interesting opportunities for value-minded investors. With their strong brand portfolios, consistent dividend growth, and strategic initiatives geared toward future success, these stocks offer a compelling mix of value and upside potential. Now's the time to consider adding these reliable income generators to your portfolio, while they're still trading at a discount.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
