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The well-known retailer Target (TGT) - Get Report  has attracted surprisingly little interest on Wall Street in 2016. Yet that is about to change.

Target's low price-to-earnings ratio shows that the stock is cheap, while its dividend yield means that it's paying juicy current income. Target shares were roughly flat in Monday trading.

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The stock's current dividend yield is 3.52%, and Target has increased its dividend for each of the past 49 years. In an era of persistently low interest rates, income like that can be hard to come by. The company has paid more than $1.4 billion in dividends over the past 12 months while generating operating cash flow of $4.5 billion, a solid 31% ratio.

Target's P/E  of 13.2 makes it a bargain among companies with comparable name recognition and market penetration. While it's true that some retailers are struggling as more consumers make purchases online, Target has been revising its strategy to attract new customers.

For example, it has been opening "flexible format" stores in big urban markets that concentrate on the sort of products that urban customers need. It now has 26 of these smaller outlets in New York City, Chicago, Philadelphia and other big cities. This allows it to reach customers who don't go to Walmart, which has no outlet in New York City and a limited presence in other urban markets.

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At the same time, these stores can get some business from national drug store chains such as Walgreens Boots Alliance and CVS Health.

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Target's latest earnings report showed profitability that is ahead of expectations. Second-quarter earnings per share from continuing operations were $1.23, a small increase from the second quarter of 2015. And the company is on pace to exceed its goal to save $2 billion in costs over the two-year period ending in 2016.

To maintain its position in the market, Target must increase its internet sales even as it draws more customers into its bricks-and-mortar stores. In the most recent quarter, digital channel sales increased 16% year over year. The stock was underestimated for a while because of a generally bearish attitude toward retail, but that will change quickly as Target continues to exceed expectations.


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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.