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Target is a large retailer, while Realty Income is a large retail landlord.
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Retail stores go in and out of favor, often leading to material stock price volatility.
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Retailers have to keep paying rent if they want access to the stores they lease.
Share prices of Target (NYSE: TGT) have fallen a huge 65% from their 2021 peaks. Realty Income‘s (NYSE: O) stock price is down around 24% from its 2020 high-water mark. Which of these beaten-down retail-focused businesses is the best stock to buy right now? That depends on how you look at the retail sector.
Target is a big-box retailer with stores across the United States. It sells a broad variety of goods from food to clothing to furniture. It competes most directly with Walmart, but generally attempts to provide a more upscale retail experience. It has a long history of growth behind it, highlighted by 58 consecutive annual dividend increases. At this point, however, the business is fairly mature.
Realty Income is a net lease real estate investment trust (REIT). Its primary focus is on single-tenant retail properties, which make up almost 75% of the company’s rent roll. A net lease requires tenants to pay most property-level operating costs, which gives the tenant effective control of the property. Realty Income’s costs and risk are reduced in this arrangement, so it is happy to oblige.
Realty Income’s portfolio contains over 15,600 properties spread across the United States and various countries in Europe. Like Target, Realty Income has a long history of dividend growth behind it. The REIT has increased its dividend for 30 consecutive years.
Both Target and Realty Income have impressive dividend histories, so there’s really no difference on that front. However, Target’s dividend yield is around 4.6% while Realty Income’s yield is a full percentage point higher at 5.6%. Investors looking to maximize the income their portfolios generate will likely prefer Realty Income.
Both of these companies are offering yields that are near their highest levels in a decade. But Target’s dividend yield is also near the highest levels in the retailer’s history. So while both companies appear attractively priced today, Target is more likely to interest value-focused investors.
From a dividend growth perspective, Target’s annualized dividend growth over the past decade was roughly 8%. Realty Income’s annualized growth rate over that span was a much less impressive 3% or so. Dividend growth investors will probably prefer Target, noting again that the current dividend yield is also historically attractive.
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