Why Target Stock May Keep Falling Despite a 5% Dividend Yield

Key Points

• Target's core retail performance continues to weaken, with comps down and digital growth failing to offset in-store declines.
• Despite weak earnings and guidance, Target’s capital return program remains intact with a projected 5% dividend yield by late 2025.
• Analyst sentiment and institutional trends remain bearish, pointing to further downside risk for the stock.

Target NYSE: TGT is trading in deep-value territory, offering a projected 5% dividend yield in late 2025, but that alone may not be enough reason to buy in. Despite some potential for recovery in 2026, near-term headwinds remain strong. Target's Q3 earnings release and guidance update stated that store sales are in decline and digital growth remains tepid, signaling ongoing weakness into the new year. 

Target's comparable sales fell nearly 4%, with weakness across most categories. Digital sales rose 2.4% year over year (YOY)—a figure that sounds positive but is far too modest to offset declining foot traffic at physical locations. The marginal digital growth remains insufficient without stronger brick-and-mortar results to support overall business expansion.

Target Falls Short of Market Expectations

Relative to analyst forecasts, Target's Q3 performance wasn't horrible.

Adjusted earnings per share (EPS) of $1.78 beat expectations by 7 cents. The caveat is that earnings are down 3.7% YOY, more than double the 1.5% revenue contraction. Core performance, particularly in physical retail, dragged down results. Comparable sales in that segment dropped 2.7%. 

The company's forward guidance further dampened sentiment, as Target executives expect sales contraction to continue. While they reaffirmed the Q4 forecast of low single-digit revenue declines, they lowered the adjusted earnings outlook by 50 cents, or 6.25% below analyst consensus.

Target is facing serious issues and is likely to struggle in the subsequent quarters. With a cautious holiday strategy focused on value pricing and new products, management hopes to regain some market share, but competition from Walmart and off-price retailers remains fierce. 

Target’s Capital Return Remains Secure for 2026

The cash flow and balance sheet highlights show Target’s capital return is reliable for 2026. While Q3 cash flow was negative, this was due to one-time capital expenditures that won't affect financials in the long-term.

The critical details are that cash and assets are rising while debt remains low and manageable, allowing room in the cash flow for share buybacks and dividends. 

Target’s dividend is expected to yield a historically high 5% in late 2025, and the distribution is anticipated to increase annually. Target is a Dividend King, unlikely to relinquish its status unless pressured. While payout increases are expected to continue, they may remain in the low single-digit range.

Share buybacks have also contributed to shareholder returns, with repurchases reducing share count by an average of 1.4% for Q3 and 1.6% year-to-date. 

Analyst Trends Are Pushing Target’s Stock Lower

The Q3 release is unlikely to reverse the negative analyst momentum. Although the Wall Street consensus on TGT is Hold and the price target forecasts a 20% upside, increasing analyst coverage is signaling deteriorating sentiment and a declining price target.

The recent price target revisions, issued days before the release, include numerous reductions that put TGT stock in the low end of the range. Assuming this trend continues, the TGT price will likely fall to new lows. 

Institutional behavior is also turning cautious. Approximately 80% of the stock is held by institutions, which were net buying in Q1 through Q3, but reverted to selling in the first half of Q4. Without a near-term catalyst to drive interest, this influential group may continue to divest its positions and push TGT’s stock price lower.