Could Dollar General Represent an Ideal Inclusion in a Dividend-Focused Investment Collection?
Investing in Dollar General's (DG 1.20%) shares might seem like a dicey proposition given they've plummeted 72% from their all-time high, last seen in 2009 when the company reentered public trading. Boasting a current dividend yield of 3.3%, it's more than twice the average yield for S&P 500 stocks, making it an intriguing addition to any dividend stock portfolio.
However, investors should be aware that Dollar General isn't without flaws. Experts predict a 5% increase in net sales for the fiscal fourth quarter, accompanied by a modest increase in same-store sales. This growth can be viewed as a positive, but it's not enough to overshadow the anticipated 25% drop in diluted earnings per share (EPS).
Dollar General's declining EPS is a source of concern for dividend investors, as earnings are crucial to paying dividends. Nevertheless, management is proactively addressing inventory management issues, which had caused markdowns, theft, and damage. The company has demonstrated progress in reducing inventory per store by 7% year-over-year and is combatting theft more effectively.
While Dollar General's profits are on a downward trajectory, their dividend remains safe. Its low dividend payout ratio of 38.8% means that nearly two-thirds of earnings remain untouched, leaving ample room for future dividend increases. In fact, Dollar General's payout ratio has averaged a modest 38.8% over the last 12 months.
Investors who allocate their funds to Dollar General's stock today can secure a dividend yield nearly triple the average for S&P 500 stocks. Moreover, the company's commitment to increasing its dividend over the past decade offers a strong indication that future increases are likely as profits improve.
Some insights to ponder:
- Dollar General's average dividend growth rate has been 12% per year in the last three years.
- Management recently boosted the dividend by $0.04, and the company pays dividends four times annually.
- The dividend payout ratio varies depending on whether you look at earnings, estimates, or cash flow, but it's consistently below 50%.
Considering these factors, investing in Dollar General could present a lucrative opportunity for dividend investors, provided they're willing to accept the company's current challenges.
Despite Dollar General's declining earnings, strategic investments in finance might still yield dividends. The company's low dividend payout ratio and consistent dividend growth make it an attractive option for investors seeking income, even with the potential challenges ahead.
Investors should closely monitor the company's financial performance in relation to its dividend payouts, ensuring that the money they put into Dollar General's shares continues to generate dividends.