Key Takeaways
- Target and Best Buy both lifted their full-year sales outlooks in August, and their dividends yield 3.1% and 4.5%.
- Over the 12 months to Aug. 1, 2026, Target paid out 46% of its free cash flow as dividends and Best Buy paid out 45%.
- On analysts’ estimates for the year to January 2027, those ratios rise to 66% at Target and 58% at Best Buy.
- Target has raised its dividend for more than 50 years and Best Buy for 13, while Best Buy carries less debt: 0.5x EBITDA against 1.5x.
Target (TGT) lifted its full-year sales outlook on Aug. 19, and Best Buy (BBY) raised its revenue guidance eight days later. Neither has been generous with its dividend lately, though. Target’s latest raise was 1.8%, and Best Buy’s dividend per share rose 1.1% in the year to January 2026.
That leaves income investors choosing between Target’s 3.1% yield, backed by more than 50 years of raises, and Best Buy’s 4.5%. So which is the better dividend stock?
| Metric | Target (TGT) | Best Buy (BBY) |
|---|---|---|
| Dividend yield | 3.1% | 4.5% |
| Dividend growth, years to Jan. 2021–Jan. 2026 | 11.0% a year | 10.1% a year |
| Dividend record (company’s own count) | More than 50 years of annual increases | 13 straight years of raises |
| Cash dividend payout ratio, TTM to Aug. 1, 2026 | 46% | 45% |
| Cash dividend payout ratio, forward (year to Jan. 2027) | 66% | 58% |
| Net debt / EBITDA (LTM) | 1.49x | 0.48x |
| Interest coverage, EBIT / interest (LTM) | 12.66x | 40.44x |
Target puts the dividend second in line
Target’s sales are growing. Net sales rose 5.3% to $26.5 billion in the quarter to Aug. 1, 2026, from the same quarter a year before.
After investing in the business, “we look to support the dividend and build on our more than 50-year record of annual increases,” Target said on its August call.
Over the 12 months to Aug. 1, 2026, Target paid $2.07 billion in dividends from $4.46 billion of free cash flow, a comfortable 46%. Seven analysts expect $3.13 billion of free cash flow in the year to January 2027, which would push the ratio to a tighter 66%. That’s still up 10% on the year to January 2026, so the trailing figure is the one running high.
Dividends paid rose from $1.35 billion in the year to January 2017 to $2.05 billion in the year to January 2026, while free cash flow swung far more widely.
Free cash flow fell short of the dividend in just one of those years: the year to January 2023, when it came in at negative $1.51 billion.
The risk is slow raises. Target says it’s balancing the dividend “with our goal of moving towards a 40% payout ratio over time.” Given that 1.8% raise, I wouldn’t count on a quick return to the 11.0% a year it averaged over the five years to January 2026.
Best Buy’s 13-year streak
Best Buy covers its dividend just as well over the same 12 months, and its U.S. business is picking up. Domestic comparable sales rose 4.5% in the quarter to Aug. 1, 2026, against 1.1% in the same quarter a year before.
Over the 12 months to Aug. 1, 2026, Best Buy paid $803 million in dividends from $1.77 billion of free cash flow, a well-covered 45%. Five analysts expect $1.41 billion of free cash flow in the year to January 2027. That’s up 12% on the year before and puts the forward ratio at 58%.
Dividends paid more than doubled, from $0.36 billion in the year to January 2017 to $0.80 billion in the year to January 2026, while free cash flow ranged from $0.68 billion to $4.21 billion.
The year to January 2024 was the one year in ten when Best Buy paid out more ($0.80 billion) than it generated ($0.68 billion).
“We have raised our quarterly dividend for 13 straight years and remain committed to being a premium dividend payer,” Best Buy said on its May call. The main risk, by its own account, is how much it depends on the cash it brings in during its fourth quarter.
So which dividend wins?
Best Buy is the better dividend stock. It pays $450 a year on $10,000, against $310 from Target. Its dividend is covered as well over the trailing 12 months (45% against 46%) and better on analysts’ estimates for the year to January 2027 (58% against 66%).
At each dividend’s growth rate over the five years to January 2026, that $10,000 would pay about $790 from Target and about $1,069 from Best Buy in year 10, a 7.9% and a 10.7% yield on your cash today. At the pace each dividend grew in the year to January 2026, it’s about $364 against $495. Either way, Target’s income wouldn’t catch up for more than 30 years.
This isn’t to say Target’s dividend is in trouble. It’s covered, sales are growing, and a record of more than 50 years of raises is one I’m confident management will work very hard to keep. It’s just that Best Buy pays the bigger check, covers it at least as well, and carries far less debt doing it.
Of course, Best Buy is changing CEOs, with Jason Bonfig taking over from Corie Barry, and its holiday quarter will show whether that 58% forward ratio holds up.
So what is Best Buy stock actually worth?
TIKR lets you forecast the future price of any stock in less than a minute. Just enter a few assumptions into TIKR’s valuation model and see what Best Buy could be worth. Start from Wall Street consensus estimates, or adjust the inputs to reflect your own view of the business. It’s free to use.
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
