The market surged this week on the debt ceiling deal and a robust jobs report. Moreover, inflation is tending down. But some stocks performed poorly because of company-specific issues. For example, one stock that was oversold because it did not meet expectations was Dollar General (DG).
Dollar General is the leading American "dollar store." Today, about 80% of items sold in the stores are priced at $5 or less. Stores sell items in four categories: consumables, seasonal, home products, and apparel. The company has nearly 20,000 stores across the U.S., and most are in towns of 20,000 or fewer people.
Total sales were $37,845M in FY 2022 and the last twelve months.
According to Stock Rover*, the stock price is down (-32.4%) year-to-date and (-23.4%) in the trailing year after adjusting for dividends return. For perspective, the S&P 500 Index is up +6.2% in the past twelve months. The company’s core customers are struggling with high inflation exceeding wage increases.
After the recent share price decline, Dollar General is yielding 1.42%. This value is more than the 5-year average of 0.88%. The firm only started paying a dividend in 2015. Since then, the 5-year growth rate has been impressive at roughly 27%. The nine consecutive years of increases place the stock in the Dividend Contenders list. The conservative payout ratio of ~25% suggests many more years. The dividend quality grade is a ‘B+.’
Source: Portfolio Insight*
The falling stock price has caused the valuation to decrease simultaneously. The forward P/E ratio is now only 16.2X, below the 5-year and 10-year ranges. The stock is probably oversold. Investors should like Dollar General for its market leadership, dividend growth rate and safety, and valuation.
Source: Portfolio Insight*
Disclosure: Long DG
Disclaimer: The author is not a licensed or registered investment adviser or broker/dealer. He is not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.