Will This Undervalued Dividend Stock Turn $10,000 Into a Million?

Key Points

Despite the market operating in record territory, one of the leading retail stocks is currently trading at a very attractive valuation. This company has faced challenges, with same-store sales declining over the past two fiscal years. However, its management has shown a strong commitment to shareholders by raising dividends for 54 consecutive years.

While many investors are on the lookout for the next big winners, some prefer to own businesses that provide regular income. Generating income from your stock portfolio can offer stability and peace of mind, especially during times of geopolitical or macroeconomic uncertainty.

A particularly appealing scenario is when you can purchase a company that's trading at a significantly low valuation. In theory, this could present substantial upside potential. There are several companies that fit this description, but one stands out as a major retailer.

Where to Invest $1,000 Right Now?

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How Much Can You Earn with a $10,000 Investment?

If you invest $10,000 in a bargain dividend stock, it could potentially help you grow your wealth. Shares of Target, for example, have historically been cheap, offering an attractive price-to-earnings ratio of just 11.3. Over the last decade, shares have rarely been less expensive.

Dealing with Ongoing Issues

Target’s shares are cheap for a reason. The company has struggled in recent years, with revenue declining in both fiscal 2023 and 2024. Sales also dipped in the latest fiscal quarter, driven by lower same-store sales. Foot traffic was notably down compared to the previous year.

Despite being a top player in the retail sector, Target faces intense competition. Customers have no switching costs, making it difficult for retailers to stand out unless they offer better products, wider selections, or lower prices. The dominance of Amazon and Walmart adds to the challenge.

President Donald Trump's trade policies have created a complex environment for retailers. Target is adjusting its supply chain, changing terms with vendors, and sourcing fewer products from China. It may also raise prices on some items.

Focusing on Discretionary Goods

Target primarily sells discretionary goods. While food, beverages, and household essentials make up 43% of its revenue, the remaining 57% comes from items that consumers can delay purchasing during tough economic times.

However, there are positive developments. Target has found success with its paid loyalty program, Target Circle 360, which has helped drive digital sales growth. The company also established an "Enterprise Acceleration Office" to stimulate growth, though results are not guaranteed.

Targeting Income Investors

Although Target's operations face challenges, it remains a consistently profitable enterprise. This allows management to return capital to shareholders. The company has raised its dividend for 54 straight years, a remarkable track record. With a current dividend yield of nearly 4.4%, it offers a solid income stream, translating to about $440 per year on a $10,000 investment.

In my view, this stock is best suited for income-seeking investors. Target isn't expected to deliver significant growth in the future. Rapid store expansion is no longer a viable strategy.

Therefore, this stock won't make you a millionaire. It's important to remember that no single business is likely to produce such a high return. A diversified portfolio is typically the best approach.

Should You Invest $1,000 in Target Right Now?

Before investing in Target, consider the following:

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Final Thoughts

John Mackey, former CEO of Whole Foods Market, is a member of The Motley Fool’s board of directors. Neil Patel has no position in any of the mentioned stocks. The Motley Fool has positions in and recommends Amazon, Target, and Walmart. The Motley Fool has a disclosure policy.