Tuesday, 7 June 2016

Options Trade - Target

After the recent market run up, it seems value can only be found in companies people love to hate. GM is one. TGT is another.

My average dividend yield analysis of TGT shows the average 3 and 5 year yields to be 3.0% and 2.63%, respectively. Using the current dividend, that corresponds to $74.72 and $85.08. Because TGT is trading at a discount to these prices, I decided to sell a put option on this baby:

Jun/06/2016 Sold 1 TGT Jan 20 '17 $67.50 Put @ 4.40 ($11.21 fee)

If I get put the shares, my cost (after commission) would be $63.22.

Last year, TGT announced a 7.7% dividend increase on June 9. If they announce a 7.1% increase this year (i.e. $2.40 annually), the 3 and 5 year yields would correspond to share prices of $80.08 and $91.16.

The FAST graph below indicates that EPS are estimated to increase about 10% in 2016, 2017 and 2018. I couldn't believe these numbers so I checked S&P and they estimate 2017 and 2018 EPS at $5.25 and $5.70, respectively. Is it me, or is it a magical time (yeah yeah, I've got Donna Lewis - I Love You Always Forever - blasting on my Focal Aria 926)?

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