Target Loses Its 'Mr. Sam'

NEW YORK ( TheStreet) -- Much of the mythology around Wal-Mart ( WMT) comes from its legendary founder, Sam Walton.

The same is true for rival Target ( TGT) and Douglas Dayton, who died Saturday at 88.

Like Walton, Dayton passed his company on to younger men long before he passed. Dayton was the youngest of five brothers, one of whom, Bruce, is still with us at 94. Dayton called Target "the best job I ever had," and headed the unit that built the first four stores. According to his Minneapolis Star-Tribune obituary, he also got a kick out of customers calling it "Tar-zhay," French-ifying it.

Dayton was brought back into the parent company in 1968 to help run the Dayton-Hudson Stores, a traditional department store -- many of its stores are now part of Macy's ( M). He retired from the company in 1974 and retired from business in 1994.

But Dayton brother values continue to shape Target just as Walton's shape Wal-Mart. Target is Midwest-focused, heavily philanthropic and accused of being liberal. Current Minnesota governor Mark Dayton, a Democrat, is a nephew of Douglas Dayton.

Walton's values were more southern, more conservative and more entrepreneurial. While Dayton built his business from inside an old-line department store, Walton built his business from scratch. Walton's children remain big contributors to conservative causes.

But which is a better investment?

The answer may surprise you. If you were in Wal-Mart during its go-go days, you're rich. The company's value has expanded nearly 100,000% since it came public in the 1970s, and one of the favorite company legends is of ordinary employees who became millionaires off their stock.

But over the last 10 years, Wal-Mart's growth has slowed, and Target has been the better bet. Target stock is up 88% over the last 10 years, 50% over the last five, 21% over the last one year. It recently gave shareholders another bump in the dividend, to 43 cents, and now yields 2.45%. That's close to Wal-Mart's 2.5% yield.

Much of the problem is due to the law of large numbers. Wal-Mart is nearly 10 times bigger than Target by revenue, so while its growth rate is slower it actually increased sales by $23 billion over the last year against Target's increase of under $2.5 billion.

Target has been able to follow Wal-Mart's advances in technology, logistics and merchandising, which were proven during the 1980s and 1990s, and become the prime alternative. If you don't like Wal-Mart for one reason or another, you may be loyal to Target.

TheStreet recently re-itterated a buy rating on Target stock, and the company has been expanding rapidly in Canada, expecting to double its presence there by next year while selling its credit card operation to Canada's Toronto-Dominion Bank ( TD) so it can pay down debt and buy back stock.

And that's the real irony here. While the Daytons are Democrats and most Waltons are Republicans, it's Target that has always been the more conservative company. It has been slower to seize opportunities and has made big mistakes on the Web, leaving ( AMZN) in 2011 to build its own site, which, as IT Knowledge Exchange notes, quickly ran into problems. Wal-Mart has also made online mistakes, as Consumerist notes, but it's still built an $8 billion business.

It's one of the ironies of investment that a smaller company can often be a better investment than a bigger one because it has more room to grow. Target's been proving that for a decade now against Wal-Mart. Douglas Dayton's death is unlikely to change that.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.