The S&P 500 (^GSPC -0.67%) is made up of large-cap stocks. Despite the stock market's recent volatility triggered by higher tariffs, among other things, the index gained 9.8% over the last year through May 21.

However, not all stocks in the index have fared this well. Target's (TGT -0.79%) share price lost more than 40% during this period.

Investors have their reasons for sending the stock price down so steeply. However, dividend-seeking investors with a long time horizon should use this opportunity to purchase Target shares.

Image source: Getty Images.

Impressive dividend streak

Investors cannot question Target's commitment to paying dividends. The company has made a payout since 1967, when it became a public company.

As remarkable as this feat is, even better, the board of directors has built an impressive streak of raising payments. Last June, Target hiked the quarterly payout by 1.8%, marking 53 straight years with an increase. That makes Target a Dividend King.

Clearly, the company places a high importance on rewarding shareholders with dividends. Aside from the willingness, investors need to check if a company has the ability to continue making payouts.

Ample dividend support

Last year's challenges included consumers stressed by high prices. That's hurt their discretionary spending -- hence Target's sales numbers. Nonetheless, Target's fiscal fourth-quarter same-store sales (comps) increased 1.5%. The period ended on Feb. 1.

This year hasn't been easier so far. In fact, it's become more challenging. Target's first-quarter comps dropped 3.8%. Traffic contributed a 2.4-percentage-point decline, and spending was responsible for 1.4 percentage points. Earnings per share, adjusted for special items, came in at $1.30, down from $2.03.

Target is confronting higher tariffs that may raise costs and cause shoppers to tighten their wallets. That could temporarily hurt the company's sales and profitability. However, Target should weather the storm. At some point, the economy will return to a more predictable state rather than staying in flux. And consumers will buy at Target based on its differentiated merchandise.

And there has also been boycotts over management's decision to pull back on diversity, equity, and inclusion initiatives. These have hurt traffic. Target's undoubtedly in a difficult position, particularly given the divisive political environment.

However, it seems likely that the company will find some solution, and management, after a period of inaction, has taken positive steps. This includes having constructive dialogue with various groups.

Meanwhile, Target has a payout ratio of 50%. Even with management's reduced outlook for this year, in which it expects $7 to $9 a share in earnings, that's plenty to fund the $4.48 in annual dividends. That should alleviate any concern about the company's ability to pay dividends.

Shareholders will receive a 4.8% dividend yield. That's much higher than the S&P 500's 1.3%.

Target's valuation

Target's stock price decline has created a compelling valuation. The shares have a price-to-earnings (P/E) ratio of 11, down from 18 a year ago. The 10-year median is 16. Target's P/E also looks good in comparison to the S&P 500, which has a P/E multiple of 28.

You can collect a healthy dividend while waiting for the climate to improve. While it may take a while, and no one can predict the timing, I have faith that people will return to Target. After all, fourth-quarter traffic, before the boycotts, was positive.

When they do, Target's earnings will grow faster. Then the share price will increase at a nice rate as the multiple expands.

Granted, it takes a patient approach. But businesses with strong long-term fundamentals and growing dividends don't sell at discounts very often. When they do, you should take advantage of the opportunity.