Case Study #4

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Tarleton State University *

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4303

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Finance

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May 24, 2024

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docx

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5

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Dividend Analysis Report Target Corporation Nancy Flores Fin 4303-110 Rong Guo Texas A&M Central Texas
I. Dividend Analysis 1. Current Dividend Policy Table 1: Current Dividends Policies and Cash Pays Dividends? Yes Frequency of dividends in last 3 years Quarterly Average amount in last 3 years $0.70 Buybacks Stock in last 3 years? Yes Total cash to shareholders last 3 years $4,221 (millions) Cash in last 3 years $12,644 (millions) Cash / Revenues $0.05 (millions) Target Corporation declared and paid dividends quarterly over the three-year period spanning from 2021-2023. Additionally, Target took part in stock buyback. Target consistently saw an increase in cash over the three-year period and disbursed $4,221 (in millions) to shareholders. 2. Free Cash Flows to Shareholders Table 2: Assessing the Firm’s Dividend Policy Average FCFE last 3 years $5,182 (in millions) Average Dividends and Buybacks $2,315 (in millions) Difference $2,867.50 % Dividends / Buybacks 43.67%
3. Dividend Policies and Returns Table 3: Past Returns vs. Dividend Policy ROE 22.883% Cost of Equity 12.83% Difference 10.053% ROC 4.860% WACC 3.474% Difference 1.386% 4. Recommendations for Dividend Policy Target Corporation has successfully accumulated cash over the last three years (including the COVID-19 pandemic). The positive return spreads show that the corporation has effectively used its accumulated cash. These figures mean that the manager is creating value for the corporation’s shareholders. Target was able to generate this cash and create value for the shareholders through the implementation of the stock repurchase program that the corporation participates in. Buyback of stock decreases what is in circulation and decreases capital for the corporation. However, when the amount of stock available decreases, the value of the stock available increases in value. II. Peer Group Analysis Table 4: Dividend Policies vs. Industry Dividend Yield 2.40% Dividend Yield of Industry 1.37% Difference 1.03% Payout Ratio 68.87% Payout Ratio of Industry 40.60% Difference 28.27%
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