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Apple puts things in perspective for Target, other dividend payers

Target announced completion of a $10 billion share repurchase program this week and reminded investors of its commitment to more than double its annual dividend payment to $3 by 2017. Too bad Apple announced the same day it would begin paying its first ever quarterly dividend of $2.65 later this year.

In other words, Apple will pay a quarterly dividend that is just 35 cents shy of the annual dividend Target doesn’t plan to pay until five years from now. Target’s annual payout currently stands at $1.20. Apple was able to initiate its dividend at such a high level because it has been hording its cash for so long it had accumulated a $100 million and its products remain in high demand. Three million iPad 3’s were sold in three days following the product’s launch last week.

“We are extremely confident in our future and see tremendous opportunities ahead,” said Apple CFO Peter Oppenheimer.

Target too is see opportunity ahead and is enjoying momentum, it just looks a little different, and in all fairness, no company compares well when held up against the most innovative and successful technology company on the planet. However, while Apple is riding high currently, technology companies tend to rise and fall with product cycles, while retailers tend to endure as long as they remain vigilant in constantly evolving to meet customer needs. This isn’t to suggest the imminent demise of Apple, far from it, but the company has a long way to go to rival the consistency of Target even though it has already surpassed it in terms of generosity.

For example, Target has paid a dividend every quarter since it became a public company in 1967, and 2011 was the 40th consecutive year in which Target increased its annual dividend. Over the last 5 years, Target’s dividend growth has outstripped its earnings per share growth. The company expects to continue to grow the dividend at a robust pace, which would allow the annual dividend to rise to $3 or more by 2017, assuming the company meets its goal to grow annual earnings per share to $8 or more by that time. 

Earnings per share growth was aided the past five years by an aggressive share repurchase program and that will remain the case for the next several years. Target recently completed a $10 billion program authorized in November 2007, which allowed the company to buy back 193.5 million shares, nearly one fourth of the shares outstanding at the time the program was initiated, at an average price of $51.68. A new $5 billion repurchase program authorized in January of this year is expected to be completed in the next two to three years.

“Target’s completion of the 2007 share repurchase program demonstrates our long-standing commitment to return cash to shareholders through both dividends and share repurchase,” said John Mulligan, Target’s incoming CFO. “Through disciplined financial management, Target continues to generate far more cash than we need to fund appropriate reinvestment in our core businesses.”

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