The Smartest Retail Stock to Buy With $500 Right Now

Key Points

Target stock is a compelling buy for value investors seeking beaten-down stocks with potential to rebound. Despite a 65% drop from its 2021 high, Target shows signs of improvement with better sales and traffic trends in the second quarter. The company is in the process of deploying AI tools to improve forecasting and sales performance. 10 stocks we like better than Target ›

The tech-fueled bull market has lasted for over three years, but not every sector is participating. Several leading retail brands have sunk sharply over the past year. Several problems can be to blame, like tariffs, a soft labor market, and weak consumer spending.

Target(NYSE: TGT) has navigated much worse economic problems in its century-long operating history. Nonetheless, it is one of the hardest-hit retail stocks, making it a compelling buy for value investors. If you're loaded up on growth stocks and looking to allocate some extra cash to better values, Target and its high dividend yield could hit the bullseye for you.Image source: Getty Images.

Why Target stock is a buy

Target stock is trading down about 65% from its 2021 high. However, many shoppers still flock to Target stores for exclusive merchandise and affordable home goods. Second-quarter sales were down 0.9% year over year, but the company noted that traffic and sales trends improved "meaningfully" over the previous quarter.

The company is deploying artificial intelligence and other data tools to improve sales and efficiency. This indicates there are many things management has yet to fully take advantage of to improve performance, which could ultimately lift Target stock over the next few years.

The sell-off has brought the stock's forward dividend yield up to around 5%, which means a $500 investment would earn you about $25 a year in passive income. This is based on a quarterly per-share payout of $1.14 and is supported by plenty of earnings. Target is one of the elite dividend payers, having paid a regular dividend since 1967, which reflects solid financial fortitude and competitive advantages in the business. Over the past 54 years, it has consistently raised its dividend annually.

Buying shares of Dividend Kings when they are offering ultra-high yields usually works out well for investors. Target should see better days ahead, making now a great time to invest.

Should you buy stock in Target right now?

Before you buy stock in Target, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Target wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

The Smartest Retail Stock to Buy With $500 Right Now was originally published by The Motley Fool

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