2 Dividend Kings to Buy at a Discount Right Now

Dividend Kings are companies that have consistently increased their dividend payouts to shareholders for at least 50 consecutive years. These companies are known for their strong financial stability, steady cash flow, and commitment to returning value to their shareholders through dividends. 

With the Federal Reserve recently cutting interest rates, the spotlight is shining on income-generating investments like these. That’s because yield-seeking investors may now shift from the bond market to dividend-paying stocks to find their passive income fix.

As the appeal of dividend stocks grows stronger, here’s a closer look at two affordable Dividend Kings for income-focused investors in search of value-priced plays.

Dividend King #1: Target Stock

Minnesota-based Target Corporation (TGT) owns and operates general merchandise stores. Valued at around $71.8 billion by market cap, the company focuses on merchandising operations, which include general merchandise and food discount stores and a fully integrated online business. TGT also offers credit to qualified applicants through its branded proprietary credit cards.

Shares of this retail giant are up 39.3% over the past year, slightly outperforming the broader S&P 500 Index’s ($SPX) return of roughly 32.3% during this time frame. 

On Sept. 18, Target declared a quarterly dividend of $1.12 per share, set to be distributed to its shareholders on Dec. 10. This brings its annualized dividend to $4.48 per share, offering a solid dividend yield of 2.88%.  

As a Dividend King with over 55 years of consecutive dividend growth and a sustainable payout ratio of 45.27%, Target is a solid pick for investors seeking passive income. But Target’s commitment to shareholders doesn’t stop at dividends. In Q2, the company repurchased approximately $155 million worth of shares. With a hefty $9.5 billion still left under its repurchase program, Target is committed to maximizing shareholder value.

Plus, TGT stock is priced at 16.41 times forward earnings and 0.67 times sales, which represents a discount to the consumer defensive sector median, as well as its own five-year average valuation. In other words, this Dividend King looks cheap at current prices.

On Aug. 21, TGT shares closed up more than 10% after reporting its Q2 earnings results, which beat Wall Street’s estimates. Total revenue increased 2.6% year over year to $25.4 billion, while adjusted EPS of $2.57 climbed 42.8% annually, crushing consensus forecasts by a solid 19%. The retail giant posted impressive comparable sales growth during the quarter, fueled by heightened foot traffic in stores and digital channels.  

CEO Brian Cornell noted, “We made a commitment to get back to growth in the second quarter, and the team delivered, all while expanding operating margins and growing EPS by more than 40% compared to last year. Importantly, our growth was driven entirely by traffic in stores and our digital channels, with double-digit growth in our same-day delivery services."

For Q3, management expects Target’s adjusted EPS to range between $2.10 and $2.40. For the full fiscal year 2024, the company raised its adjusted EPS outlook to a range between $9 and $9.70, supported by its competitive advantage and sweeping initiatives driving its market share growth.

Analysts tracking Target project the company’s profit to reach $9.53 per share in fiscal 2024, up 6.6% year over year, and grow another 10.8% to $10.56 per share in fiscal 2025. 

Overall, Wall Street is optimistic, with a consensus “Moderate Buy” rating for TGT stock. Of the 31 analysts in coverage, 16 advise a “Strong Buy,” three recommend a “Moderate Buy,” 11 maintain a “Hold,” and one recommends a “Strong Sell.”  

The mean price target of $177.63 represents a 12.8% premium to TGT’s current price. The Street-high price target of $210 suggests the stock could rally as much as 33% over the next 12 months. 

Dividend King #2: Black Hills Stock

Black Hills Corporation (BKH), headquartered in Rapid City, South Dakota, operates as an electric and natural gas utility company with a market cap of $4.24 billion. The company delivers electricity and natural gas(NGV24) to 1.3 million customers in eight states, generates electricity, and produces coal to serve onsite generation. 

Shares of this diversified utility company have gained 14.7% over the past 52 weeks and 14.1% on a YTD basis. 

On Sept. 1, BKH paid a quarterly dividend of $0.65 per share to its shareholders, representing 54 consecutive years of dividend increases - the second-longest track record in the electric and natural gas industry. The annualized $2.60 per share payout translates to an attractive 4.23% dividend yield. Black Hills maintains a healthy payout ratio of 62.98%, highlighting its ability to balance rewarding shareholders while sustaining growth.

From a valuation perspective, BKH stock is priced at 15.72 times forward earnings and 1.76 times sales, representing a discount to the utilities sector median and its own five-year averages. This suggests that now is a good time to scoop up shares of the utility stock while they’re trading at a relative bargain.

Black Hills reported its Q2 earnings results on July 31, with revenue down 2.1% year over year to $402.6 million. While the electric utilities segment notched a 6% annual revenue increase, that strength was offset by a 10.3% decline in revenue from the gas utilities segment. 

Despite a 5.7% year-over-year dip in earnings, influenced by unfavorable impacts of mild weather and the prior year’s income tax benefits, BKH’s Q2 EPS of $0.33 edged past Wall Street's forecast of $0.32. 

In addition to the company’s solid dividend strategy and financial resilience, Black Hills has also demonstrated prudent financial management by amending and restating its revolving credit facility, maintaining total commitments of $750 million, and extending the term through May 31, 2029. This move ensures the company has access to necessary liquidity for future projects and obligations.

For fiscal 2024, management reaffirmed the company’s EPS guidance of $3.80 to $4. The company highlighted that it has already cut its electric utility greenhouse gas emissions by nearly one-third since 2005, and is aiming for a 40% reduction by 2030 and 70% by 2040.

Analysts tracking the company project that BKH’s profit will hold steady in fiscal 2024 around $3.90 per share, before rising 6.2% to $4.14 per share in fiscal 2025. 

Wall Street has a consensus “Hold” rating for outperforming BKH stock, which is set to supply Meta Platforms (META) with power for a new Wyoming data center. Out of the five analysts offering recommendations, four advise a “Hold,” and one recommends a “Moderate Sell.” 

The mean price target of $60.80 is a slight discount to BKH’s current price, while the Street-high price target of $64 suggests an upside potential of 3.5%. 

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On the date of publication, Anushka Mukherji 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.