Inside today’s Daily Journal…

On March 11 Target (TGT) announced price cuts on roughly 3,000 items.

Rather than trying to compete with differentiated merchandising, the mass-market retailer is moving to compete on price. Most prices are being cut between 10% and 20%. These changes reflect the reality of Target’s customers, who are clearly under growing financial pressure.

Facing a customer who can’t afford its cost structure, Target is… increasing its costs.

It’s doubling‑down on its brick-and-mortar strategy: building 30 more stores, “refreshing” 130 more, and increasing spending on staffing. In plain English, Target is choosing to both raise costs and cut prices in the face of a deteriorating consumer.

This – making less and spending (a lot) more – spells doom for Target’s dividend, which as we’ve been warning for months will soon be cut (and then eliminated).

Let’s briefly recap where we are.

Target’s old “cheap chic” selling proposition is gone. The weekend “Tarzay run” died with the rise of Amazon, same‑day delivery, and the permanent shift in how middle‑class families shop. The affluent “soccer mom” who Target spent 20 years cultivating has moved online… or has lost her high-paying job and now shops at Walmart.

The proof is in the numbers:

In my earlier letters, I argued Target was “the new Kmart.” Management was allowing the stores to fall into disrepair (ghetto-ized) while saving all of the capital to pay dividends.

Target’s March 11 announcement – more stores, lower prices – confirms the end of this failing strategy. Investing more in high, fixed-cost stores that the consumer can’t afford will not lead to revenue growth – and especially not if Target must cut prices to drive traffic. In a world of higher energy prices and rising credit stress, Target is going to experience a material decline in revenue – never mind margins. That means its dividend probably won’t survive this year.

Remember, dividends are supposed to be paid out of sustainable, after‑investment earnings.

Target is marching into 2026 with:

If the economy softens (and I believe it already is softening) Target’s business will collapse.

The real problem is traffic. A stressed consumer pulls back on discretionary baskets and trades down to true discounters. Lower prices – required to drive traffic – and a focus on essentials shave gross margins, while fixed store and labor costs remain. Operating margins collapse.

And now, having publicly committed to a “new chapter of growth” based on added stores and remodels, management can’t simply slash capex without admitting failure.

As operating cash flow declines and capex rises, there just isn’t enough capital left over to safely cover a $2 billion annual dividend.

By the end of 2026, Target’s board will be trapped among three hard constraints:

Today, Target can only afford two of those items. And by the end of this year, it will only be able to afford one. That’s when the board must cut – or completely suspend – the dividend. It will say this is about “investing in future growth” and “enhancing flexibility.” In truth, it will be an admission that the old model is dead and there isn’t enough cash to keep faking it.

At that moment, the remaining yield‑chasing shareholders will head for the exits. And the clock toward a Kmart-Sears endgame will be officially ticking.

Here’s a basic framework of what I expect.

“FCF After Capex” is an estimate of cash generated by the business after capital expenditures but before any change in net debt. Think of it as the pool you could, in theory, use for dividends or buybacks without degrading the balance sheet.

There’s no money to pay the existing dividend by the end of 2026.

The key takeaways for you as an investor:

Target’s dividend is very likely to be cut – or eliminated – by the end of this year or early 2027. If you’re long strictly for the yield, you’re picking up pennies in front of a steamroller.

On the other hand, if you’re looking for a low-volatility way to hedge your portfolio’s long exposure… Target is a great choice for a short.

Tell me what you think: [email protected]

Good investing,

Porter Stansberry
Stevenson, Maryland

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1. The Iran war is officially the worst energy shock in history… and it’s still getting worse. The International Energy Agency confirmed Monday that the closure of the Strait of Hormuz has produced a larger supply disruption than the oil shocks of the 1970s, with at least 44 energy assets across nine countries severely damaged. Brent crude oil has traded between $100 and $114 per barrel over the past 48 hours – now up more than 40% from pre-war levels – whipsawing on President Donald Trump’s claim of “productive conversations” with Tehran. Diesel has hit $5.29 a gallon, only the second time in history above $5. Iran also just cut all gas flows to Turkey after Israel struck South Pars, the world’s largest natural gas field, last week. Meanwhile, the five-day clock Trump set before threatening to strike Iranian power plants is set to expire this weekend.

2. Input prices signal inflation ahead. The February ISM Manufacturing Prices Paid Index reached its highest level since June 2022 – with this week’s PMI (Purchasing Managers’ Index) showing the Middle East war accelerating the trend across every major economy. Input costs flow downstream with a lag: and producer prices are already beginning to pass through to consumers. With tariff-driven inflation now compounded by a wartime energy shock, the direction is clear – prices are headed higher.

3. More private credit cockroaches. Credit ratings agency Moody’s downgraded KKR’s Future Standard private credit fund from Ba1 to Baa3, pushing the $14 billion fund into “junk” territory. Investors are rushing for the exits across the $2 trillion private-credit industry, causing asset managers to limit redemptions. This week alone, multibillion-dollar funds managed by Apollo Global and Ares Capital began limiting investor withdrawals, following similar redemption gates at BlackRock, Blue Owl, and Cliffwater.

ExxonMobil (XOM) is doubling down on its highest-margin oil-and-gas assets by moving forward with the 11-billion-barrel Longtail project off the coast of Guyana. With South American production expected to be a key driver of already-strong earnings growth through 2027, this project is central to Exxon’s long-term free cash flow. Shares for this Complete Investor recommendation are up 38% year to date – hitting an all-time high today.

Sherwin R. writes:

Porter Comment: Good morning, Sherwin —

Thanks for your insightful questions.

1. Venture Global’s facilities are located in the middle of the largest natural gas pipeline infrastructure in the world. Pipeline capacity won’t be a constraint to growth.

2. Our risk ratings are based on the company’s financial resilience (not the volatility of the share price), which is determined by looking at the risks inherent to its operations and its balance sheet. A company like Hershey (HSY), for example, has tremendous resilience both in its margins and with its balance sheet. It’s hard to imagine an economic scenario that would result in Hershey’s bankruptcy. On the other hand, there are businesses – like financial companies and commodity producers – that have risks that are inherent in their businesses (credit cycle risks, commodity price risks).

To achieve a rating of “2” or higher, a company must have an investment-grade credit rating. Commodity producers, because they are subject to commodity price risk, can’t be rated higher than “3” unless they’re hedged. Venture Global, thanks to its long-term supply contracts, is hedged (mostly) against commodity price risk. However, their credit rating is BB-, meaning they are not an investment-grade credit.

Additionally, the company faces significant execution risks while it builds out its infrastructure over the next four to six years. And, as you probably know, it faces some litigation risks right now – although those risks have been significantly reduced thanks to complete legal victories in the Shell and Repsol cases. In the BP case, Venture faces losses between $4 billion and $6 billion.

I think it’s likely that, as the litigation risks are resolved and the construction continues to be put online on time and on budget, we will upgrade Venture Global’s risk rating to “3”.

Carl J. writes:

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