Are You Missing Out on These 2 Dividend Raises From Famous Companies?

Yahoo

12 hours ago

Both a very familiar retailer and a high-profile restaurant chain operator are cranking their distributions higher.
Opportunistic income investors have time to take advantage of both.
10 stocks we like better than Target ›
Early summer isn't typically a hot period for dividend raises, and this year's version is no exception. Lately, income investors have had to be satisfied collecting payouts that were fixed several quarters -- or even years -- ago.
Over the past few days, there emerged two major exceptions to this trend -- monster retailer Target (NYSE: TGT) and Darden Restaurants (NYSE: DRI), owner and operator of well-known dining chains such as Olive Garden, Ruth's Chris Steak House, and The Capital Grille. Here's a little more about both payout pumps.
Of the two dividend raises, Target's was the more predictable. That's because the company is a Dividend King, meaning it's one of the very select group of S&P 500 component stocks that has upped its payout at least once annually for a minimum of 50 years running. In mid-June, the company extended this streak to 54 years with a nearly 2% bump in its quarterly payout to $1.14 per share.
This particular dividend raise might be more necessary than previous lifts. A once-popular stock, Target has fallen out of favor, on the back of recent drops in certain fundamentals and other factors such as its poorly received retreat from diversity, equity, and inclusion (DEI) strategies. The uncertain future of President Trump's tariffs isn't helping either.
Target's latest quarterly earnings release didn't exactly inspire confidence in the market. First-quarter net sales fell by 3% year over year to a little under $24 billion on comparable sales that dipped nearly 4%, rare declines for a company that typically improves those metrics. Non-GAAP (generally accepted accounting principles) adjusted net earnings also headed south, falling a steep 36% to $1.30 per share.
To right the ship, management has created what's essentially a task force with its so-called "enterprise acceleration office." This unit is responsible for slimming the company's operations and making them more efficient, hence better positioned for (hopefully) a return to growth.
I'd give Target a better-than-average chance of this initiative succeeding. In its long life, it's gotten past many challenges, and besides, it's actually doing quite well in certain corners of its business. For example, there's online comparable sales, which even in this Age of Digital are continuing to grow at admirable rates -- nearly 5% in quarter one.
Meanwhile, in terms of valuations, the stock is now cheap, with a PEG ratio barely treading water at a bit over 1. This makes me feel Target is a potentially strong recovery story trading at a generous discount now.
The company's dividend raise takes effect in a few months; the new payout will be dispensed on Sept. 1 to investors of record as of Aug. 13. At the current share price, its yield would be a very appealing 4.7%.
Elsewhere in the consumer goods sector, Darden also enacted a dividend raise in June. In contrast to Target, the hike was fairly generous, at 7% over its predecessor. The new quarterly dividend is $1.50 per share.
Darden isn't a Dividend King like Target, but it's been a regular payer since 1995 and a frequent raiser. It did cut its payout during the pandemic -- hardly a shocking move, as the restaurant industry was badly affected by the near-disappearance of in-person dining. Since then, though, Darden has come roaring back, with the company paying out more than it did in the pre-COVID days.
Another appealing draw of being a Darden shareholder is the company's frequent stock buybacks. Also in June, its board of directors authorized a new repurchase initiative of up to $1 billion for its common stock. The company is rarely shy to spend its capital this way, as in its latest reported quarter it expended $51 million on buybacks.
Speaking of that period -- Darden's fiscal fourth quarter of 2025 -- total sales rose by 11% year over year (although this was skewed by the addition of the 103-restaurant strong Chuy's Tex Mex chain, a 2024 acquisition). The more revealing same-restaurant sales metric was up comfortingly, though, with a nearly 5% increase.
As for profitability, non-GAAP (adjusted) net income grew 9% to over $400 million. Both that figure and the revenue line were slightly higher than the consensus analyst estimates.
Fiscal 2026 might see lower growth, as Darden is guiding for a 7% to 8% rise in total sales for the year, on a foundation of 2% to 3.5% same-restaurant sales improvement. Net income should land at $10.50 to $10.70 per share, which is just short -- although not worryingly so -- of the average pundit estimate of $10.75.
All this tells me that Darden is well positioned now, and I'd fully expect the company to at least come close to its growth targets. Continued profitability will provide money for more dividend raises and new stock buyback initiatives. As such, this stock feels like a solid investment to me.
Darden is to hand out its raised dividend on Aug. 1 to stockholders of record as of July 10. It would yield almost 2.8% at the most recent closing price.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.
Are You Missing Out on These 2 Dividend Raises From Famous Companies? was originally published by The Motley Fool
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