The Fool’s Take

Rising inflation and interest rates have taken a toll on many retail companies. Leaders like Walmart and Costco have handled the headwinds well and have seen their share prices soar, but they also don’t pay a high dividend yield and recently traded at expensive valuations.

Target’s 2.9% dividend yield and more modest price-to-earnings (P/E) ratio offer much better value that could lead to excellent returns. Target enjoys similar levels of scale as other big-box stores. It generates $107 billion of trailing revenue from nearly 2,000 stores and e-commerce.

The company has paid a dividend since 1967, illustrating its resiliency through economic cycles. In its last reported fiscal quarter, Target reported a 2.4% year-over-year increase in traffic. But customers just weren’t spending as much, as noted by a meager 0.3% increase in comparable sales.

Investors might see a boost in Target’s share price once consumer spending improves. The company is seeing strong growth from its same-day delivery program, which could lead to more sales opportunities over the long term, too. The quarterly dividend payment is $1.12 per share, up from $1.10 a year ago. On an annual basis, that comes to 52% of Target’s earnings, providing plenty of room for further dividend growth in 2025 and beyond.

(The Motley Fool owns shares of and recommends Target.)

Ask The Fool

From T.C., Port Charlotte, Fla.: What does “pro forma” mean on financial statements?

In Latin, pro forma means “as a matter of form” or “for the sake of form.” On financial statements, pro forma results or projections are essentially what-if numbers: They reflect something that might happen (or might have happened), such as a merger, or exclude some unusual items, such as losses from a disaster.

Imagine, for example, that Holmes Homes merges with Watson Construction midyear, forming Elementary Properties. Elementary’s next annual report might feature some pro forma financial results, reflecting what the condition or performance of the new combined company over the year would have looked like — as if the two original companies had been merged all year long.

Pro forma statements can permit more apples-to-apples comparisons, offering a clearer view of the company’s financial health and growth. In our example, if you were researching Elementary, it would be difficult to compare its performance in a pre-merger period with that in a post-merger period — unless you had some pro forma numbers.

From W.I., Maryville, Tenn.: Is it worth buying renters insurance?

It sure is. Yes, your landlord has likely insured the building, but that probably doesn’t include your belongings.

Renters insurance can protect you against theft or damage to your stuff and offer some personal liability protection. And it’s typically rather affordable, often costing just $100 to $200 per year.

When buying renters insurance, you’ll need to specify how much coverage you want. Some policies will cover only the depreciated value of items stolen or damaged; it’s better to get coverage for the full replacement cost.

The Fool’s School

Here’s a little math exercise. Don’t worry, it’s not that complicated, and knowing how to do it means you can determine how fast numbers are growing — numbers like a company’s revenue and earnings, or like your salary or internet bill.

Imagine that Buzzy’s Broccoli Beer posted $10 billion in revenue in 2020 and $30 billion in 2024. You can get that growth rate by using a fancy scientific calculator — you may even have one as part of your smartphone’s calculator.

But here’s how to do it with any standard calculator: Divide $30 billion by $10 billion, and you’ll get a growth multiple of 3, meaning that revenue multiplied by 3 — or tripled — over that period.

You might think that’s a 300% gain, but it’s not. (When something doubles, it increases by 100%, not 200%. Tripling is an increase of 200%.)

To arrive at the correct percentage, take the growth multiple of 3, subtract 1, multiply by 100, and tack on a percentage sign. Voila! 200%! So revenue grew by a total of 200% between 2020 and 2024.

You can also figure out the growth on an annualized basis — showing how rapidly Buzzy’s revenue grew each year, on average. The math is trickier, but you may be able to manage it with the scientific calculator.

Here’s how: Determine the time period first. In our example, from 2020 to 2024 is four years.

So take the growth multiple of 3 and raise it to the 1/4 power. (Remember that 1/4 is 0.25.)

You’ll get a result of 1.32; that’s 32% more than 1, reflecting a 32% annualized growth rate. (If the time period had been 10 years, you’d raise the multiple to the 1/10, or 0.1, power; if it had been two years, you’d use 1/2 or 0.5.)

This might be intimidating at first glance, but if you want to master it, you can with a little practice.

My Smartest Investment

From G., online: Despite having spent my entire professional life as a college professor, my wife and I have ended up very wealthy. We made good use of excellent retirement plans such as Roth IRAs and profited from buying and selling several homes over six decades.

Our most outstanding investment, though, was a lakeside property we bought for $74,000 and then sold 35 years later for just under $800,000. More importantly, we got to enjoy the investment instead of just locking it up in a safe for 35 years.

The Fool responds: Bravo! Not just for the real estate profit, but also for saving and investing via retirement plans. It makes good sense to enter retirement with multiple income streams, not just one. These might include Social Security, a pension, dividend income, interest from bonds, income from annuities and/or proceeds from selling assets such as stocks and real estate.

You did well with your lake house, but it’s worth noting that real estate doesn’t always offer the best returns. From the beginning of 1990 through April 2024, a key measure of residential real estate values rose by 308% — while the U.S. stock market, as measured by the S&P 500 index, gained 1,325%. Real estate is generally less volatile than stocks, though, and may offer some tax advantages.

(Do you have a smart or regrettable investment move to share with us? Email it to TMFShare@fool.com.)

Who Am I?

I trace my roots to the 1962 opening of a store in Arkansas. By 1967, there were 24 stores, with $12.7 million in annual sales. I opened my first pharmacy in 1978. By 1980, I had 276 stores, 21,000 workers and $1 billion in annual sales.

I expanded into Canada in 1994. Today, with a recent market value of over $800 billion, I’m a retail powerhouse; I serve about 255 million customers each week at over 10,500 stores or one of my websites. I rake in nearly $650 billion annually and employ more than 2 million people worldwide.

Who am I?

Forget last week’s question? Find it here.

Last week’s answer: Paychex