NEW YORK (TheStreet) -- Momentum stocks have historically outperformed the market. The momentum effect has been well documented since Jegadeesh and Titman's 2001 research paper Momentum. Investing in stocks that have done well over the last six-to-12 months often leads to continued out-performance.
Why is this? The leading theory is that investors don't react quickly enough to information. When positive information comes out about a company, we don't immediately bid the company's share price up to its appropriate level. Instead, the share price rises over a longer period.
This article covers three timely dividend stocks with high six-month momentum. These stocks are all very different. One is a discount retailer, one is a specialty restaurant, and one is a well-known drug store.
Dividend Momentum Stock No. 1 -- Target (TGT)
Target stock gained 30% over the last six months. The S&P 500 gained 4.1% in the same time period. The good news for the company started in November of 2014 when target released its third quarter earnings. The company had previously expected adjusted earnings-per-share of $0.40-to-$0.50. Target delivered adjusted earnings-per-share of $0.54 -- significantly beating its high end expectations. Strong growth in the company's third quarter of 2014 was a result of better-than-expected digital sales, which grew about 30% year-over-year.
Good news for Target shareholders continued on January 15th, when the company announced it would discontinue its floundering Canadian operations. Target's attempt to expand into Canada was botched from the beginning. The company continually lost money and failed to gain traction in Canada. The company's best projections showed it would not reach profitability in the country until at least 2021. Target's management made the right decision for shareholders by admitting its mistake and beginning the liquidation process of the company's Canadian stores. This frees up more cash for dividends, share repurchases, and growth in the company's profitable United States operations.
Target delivered more good news to investors on February 25th, when it released its fourth quarter earnings. The company once again exceeded its own guidance. Target projected adjusted earnings-per-share of$1.43-to-$1.47 in the fourth quarter of 2014, but delivered adjusted earnings-per-share of $1.50.
Target's next earnings release comes out May 20th. The company is expecting adjusted earnings-per-share of $0.95-to-$1.05 for its next quarterly release. Based on the company's current momentum and recent outperformance, adjusted earnings-per-share may very well come in higher than expected. If they do, the stock's momentum will likely continue surging forward.
Target currently has a dividend yield of 2.6%. The company has increased its dividend payments for 47 consecutive years, making it one of only 53 Dividend Aristocrats. The stock currently has strong momentum, driven by positive financial news and a very long history of rewarding shareholders with rising dividends.