Will Target's FY2026 adjusted EPS dividend payout ratio exceed 70%?

Current payout ratio is ~59% on FY2025E midpoint of $7.50. To breach 70%, FY2026 adjusted EPS must fall below ~$6.31-6.44 depending on dividend increase. That requires a further ~14-16% EPS decline from an already-depressed FY2025 base. While FY2024-to-FY2025 showed a ~15% decline, the committee's analysis identifies that EPS from $8.86 to $7.50 was driven by specific factors (revenue deleverage, negative comps). For FY2026 to drop another 15%, Target would need sustained revenue declines AND margin compression from tariffs without offsetting cost saves. The Stress Scanner shows FCF still covers the dividend 1.3-1.5x under moderate stress, suggesting the company has operational levers. Probability is meaningful but below the base case.

The analysis establishes that Target has experienced a meaningful EPS decline from $8.86 to guided $7.50, and identifies ongoing risks including 4+ consecutive negative comps, tariff-related COGS pressure, and revenue deleverage. The question is whether these compound to push FY2026 EPS below ~$6.44 (with a typical 2% dividend increase). The unresolved debate about dividend as governance anchor vs. liability is relevant — the 54-year streak virtually guarantees a dividend increase, pushing the required EPS decline threshold higher. The staleness note is critical: 13 months of unknown FY2026 performance introduces substantial uncertainty. If the tariff impact materializes more severely than expected AND revenue declines persist, the 70% breach is plausible but not the central case. The $7B forward commitments against $7B OCF zero-margin-of-safety finding suggests the system is fragile to downside scenarios.

The math is instructive: at FY2025 guidance midpoint of $7.50 and $4.42 DPS, payout is 59%. Even at the LOW end of guidance ($7.00) with a ~2% increase to $4.51 DPS, payout is ~64% — still 6 percentage points below the 70% threshold. To breach 70%, EPS would need to fall from $7.50 to below $6.44, which is a decline of $1.06 or ~14%. This is a large move from an already-depressed base. The committee identifies three risk vectors: continued negative comps, tariff margin compression, and revenue deleverage. However, Target has demonstrated cost-cutting capacity ($2.6B CapEx flexibility) and the Stress Scanner shows dividend coverage of 1.3-1.5x under moderate stress. The probability is elevated above a base rate of ~15% due to the compounding risk factors and the unquantified tariff exposure, but remains a tail scenario.

Straightforward math: $4.42 DPS / 0.70 = $6.31 EPS threshold. With ~2% dividend increase, threshold rises to ~$6.44. FY2025 guided at $7.00-$8.00 midpoint $7.50. The gap from $7.50 to $6.44 is $1.06 — a 14% further decline. While EPS already fell ~15% from FY2024 ($8.86) to FY2025E ($7.50), repeating that magnitude of decline requires compounding headwinds. The committee identifies tariff COGS pressure as unquantified — this is the primary wildcard. But Target has cost levers and the Stress Scanner shows dividend covered even under moderate stress. The 70% breach requires a more severe scenario than the committee's central case.

The analysis context makes clear that the current ~59% payout has meaningful buffer to 70%. For this market to resolve YES, FY2026 adjusted EPS must decline to below $6.31-6.44. From the FY2025 midpoint of $7.50, that is a ~14-16% decline. The committee identifies three compounding risk vectors: sustained revenue declines (4+ negative comps), tariff-driven COGS pressure, and operating margin compression below 5.2%. If all three materialize simultaneously, sub-$6.44 EPS is achievable. But the committee also notes Target's cost flexibility and the Stress Scanner's finding that FCF covers the dividend under moderate stress. The 54-year Aristocrat status ensures dividend increases, which raises the threshold slightly. Probability is real but below 25% — this is a downside tail scenario, not the base case.

The key insight from the analysis facts is the buffer: current payout is 59%, and even at the low end of FY2025 guidance ($7.00) with a dividend increase, the payout would be ~64%. The 70% threshold requires EPS to fall materially below the already-bearish low end of FY2025 guidance. The committee's cross-lens context is telling — the Myth Meter notes FCF of $4.48B and $4.76B cash suggesting the company can afford the dividend, while the Stress Scanner focuses on the $7B forward commitments vs. $7B OCF. The question isn't whether Target can pay but whether EPS deteriorates enough to push the ratio above 70%. Given the ~6 percentage point buffer even at the low guidance, this requires a meaningful negative surprise in FY2026.

Current payout ~59%. Need EPS below $6.31-6.44 for 70% breach. FY2025 guided $7.00-8.00. Even at low end, payout with dividend increase is only ~64%. The gap from 64% to 70% requires additional EPS deterioration beyond already-bearish guidance. Tariffs are a risk but Target has cost levers.

The 13-month resolution window introduces meaningful uncertainty. EPS already declined ~15% FY2024 to FY2025. If tariff impacts hit harder than expected and revenue declines persist, another ~14% decline is within the realm of possibility. The unquantified tariff COGS pressure and zero margin of safety on forward commitments create vulnerability. LOW confidence because of the data staleness.

The math requires ~14% EPS decline from FY2025 midpoint. FY2024 to FY2025 decline was ~15%, showing such drops are possible for Target. But repeating that magnitude requires compounding headwinds. The committee notes cost-cutting capacity and dividend coverage under stress. This is a plausible but unlikely scenario — roughly 1-in-5 chance.