Buy Target Stock and Its 3% Dividend Yield? Here’s the Setup.

While a handful of megacap tech stocks continue to drive the S&P 500 and Nasdaq higher, other sectors like retail continue to trade poorly.

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Since its one-day post-earnings jump, Target stock has declined more than 12.5% and has fallen in six straight sessions.

Now, the stock is trading down into key support. Along with this support level, the stock also pays out a dividend yield just above 3%. 

In September, Target raised its dividend by 20%, marking the 51st consecutive year of an annual dividend increase.

Are the dividend and the technical setup attractive enough to bring in buyers?

Trading Target Stock

A few factors are likely in play when it comes to Target's slump. 

First, the overall action in the retail sector is not encouraging, whether that’s Ulta Beauty  (ULTA) - Get Free Report, Home Depot  (HD) - Get Free Report, Target or one of many other names. This sector is not trading well.

Second, worries that a recession might set in do not help companies that live and die on consumer spending. So Target is being lumped into that concern.

Third, controversy has not had a great effect on stocks in the short term. That’s been notable with names like Anheuser-Busch  (BUD) - Get Free Report, but now it’s also clear in names like Target. To be sure, I think the first two factors have had a bigger impact than this, as Target shares have been struggling for months now.

The valuation for Target stock is reasonable — if management doesn’t lower guidance. Since we don't know whether that will be the case, investors can work with only what we know right now, which is that Target is a consistent dividend-paying stock and the shares are trading into prior support.

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A simple look at the weekly chart shows the stock down almost 50% from the all-time high, while it's currently trapped between $138 to $140 on the downside and about $180 on the upside. The 52-week low is $137.13.

Investors could buy Target stock around $140, use a stop-loss just below this range — say, something like $135 — and at the very least look for a rebound to the $160 area, then potentially $180.

A breakout over $180 would leave buyers in a great position with a low cost basis, although plenty needs to happen before that takes place. 

The bottom line is simple: Each investor can build a trade to fit their risk profile, but this is one reasonable way to look at Target stock from a technical and fundamental perspective. 

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