3/8/25
Dollar General (NYSE: DG) has built its reputation as a go-to retailer for budget-conscious shoppers, especially in rural areas. It’s a company that has thrived by offering convenience and affordability, even when the broader economy faces headwinds. However, its stock has taken a beating in recent months, tumbling from its 52-week high of $168.07 to a low of $66.43.
For dividend investors, this raises an important question: does Dollar General’s recent drop present an opportunity, or is there more downside ahead? While its fundamentals remain intact, the business faces challenges, and its dividend, while solid, isn’t immune to pressures.
Let’s break it down.
Key Dividend Metrics
📌 Dividend Yield: 3.10% (well above its five-year average of 1.26%)
📌 Annual Dividend: $2.36 per share
📌 Payout Ratio: 38.94% (low enough to sustain increases)
📌 Dividend Growth Streak: Over eight years
📌 Five-Year Dividend Growth Rate: Approximately 13.5% per year
📌 Ex-Dividend Date: January 7, 2025
📌 Next Payment Date: January 21, 2025
Dividend Overview
Dollar General’s current dividend yield of 3.10% stands out, especially considering it has historically hovered much lower. The main reason for this jump? A sharp drop in the stock price. That’s both an opportunity and a warning sign.
On the bright side, the company’s payout ratio sits at a reasonable 38.94%. That means less than 40% of earnings are being used to fund dividends, leaving plenty of room for future increases. If earnings remain steady or recover, investors could continue seeing dividend growth in the coming years.
The risk, of course, is that if profitability continues to decline, dividend growth could slow—or even stall temporarily. Right now, though, the numbers suggest there’s still some breathing room.
Dividend Growth and Safety
Dollar General has been a solid dividend grower, increasing its payout at an impressive pace. Over the last five years, dividends have climbed by an average of 13.5% annually, which is no small feat in the retail sector.
Looking ahead, the key factors that will determine whether this trend continues include:
- Earnings coverage: With a payout ratio below 40%, there’s room for further increases.
- Free cash flow: The company generates a healthy operating cash flow of $3.14 billion, with free cash flow at $1.31 billion—enough to comfortably fund dividends.
- Balance sheet strength: This is where caution comes in. Dollar General carries significant debt, with total borrowings of $17.57 billion and a debt-to-equity ratio of 239.24%. While manageable for now, rising interest rates or prolonged earnings pressure could create challenges.
Dividend safety looks strong today, but the company’s leverage is something to keep an eye on. If debt remains high while earnings weaken, the outlook could shift.
Chart Analysis
Price Action
Dollar General’s stock has been in a long-term downtrend, as seen in the declining price action over the past year. The stock recently closed at $81.84, which is a notable jump from its low of $75.56 earlier in the trading session. This move suggests strong buying interest at lower levels, possibly indicating a shift in sentiment.
Looking at the broader trend, the stock remains well below its 200-day moving average (dark blue line), which is still sloping downward. This confirms that the long-term trend remains bearish. However, the price has recently crossed above the 50-day moving average (light blue line), a short-term positive signal. If the stock can hold above this level, it may suggest some stabilization.
Volume and Market Participation
Volume came in at 7.19 million shares, a noticeable increase from the recent average. This surge in volume indicates that there is renewed interest in the stock, which is often needed to sustain a trend reversal. The large spike in volume back in September was associated with a sharp decline, likely due to negative news or earnings. Since then, volume has been relatively low, showing a lack of strong conviction from either buyers or sellers—until now.
This recent increase in volume, coupled with the price moving higher, suggests that buyers are stepping in more aggressively. If this trend continues, it could indicate a shift in momentum.
Relative Strength Index (RSI)
The RSI, which measures momentum, has been steadily rising and is now approaching the 60 level. This suggests that the stock is gaining strength but is not yet in overbought territory. A rising RSI in an oversold stock can be an early sign of a potential trend change, but it still needs confirmation with price action.
During the previous decline, RSI remained stuck in the lower range, showing persistent weakness. Now, with RSI trending higher, it suggests growing demand. If RSI moves above 70, the stock could become overbought in the short term, which may lead to some consolidation or a pullback.
Moving Averages
The 200-day moving average remains in a clear downtrend, reinforcing the broader bearish trend. The 50-day moving average, however, is starting to flatten out and may soon begin turning upwards. If the price remains above this level, it could act as support in the near term.
A key area to watch is whether the stock can break and hold above resistance levels near $85-$90, where it previously struggled. If it fails to do so, there’s a chance it could retest the recent lows. On the flip side, a sustained move higher could bring in momentum traders looking for a longer-term recovery.
Analyst Ratings
Recent evaluations of Dollar General’s stock have presented a mix of perspectives, reflecting both optimism and caution among analysts.
🟢 Upgrades:
- UBS Group 📈 On March 6, 2025, UBS analyst Michael Lasser maintained a “Buy” rating on Dollar General but revised the firm’s price target from $108 to $95. The analyst noted that investors are looking for clearer signs of an earnings recovery, which may take time to materialize. Despite the lowered target, there remains optimism that the stock could rebound if management executes well on cost control and margin improvements.
🔴 Downgrades:
- Telsey Advisory Group 📉 On March 6, 2025, Telsey Advisory Group lowered its price target for Dollar General from $88 to $85, maintaining a “Market Perform” rating. The firm cited ongoing margin pressures and increased competition in the discount retail sector as reasons for the reduced outlook.
- Citi ⚠️ On March 7, 2025, Citi reduced its price target from $73 to $69, signaling a more cautious stance. Analysts expressed concerns over persistent headwinds in consumer spending trends, inflationary pressures, and Dollar General’s ability to regain lost market share.
📊 Consensus Outlook:
As of the most recent data, Dollar General holds a “Hold” rating among analysts, with an average price target of $85.65. This reflects a divided outlook, where some analysts see upside potential while others remain cautious about near-term profitability.
These mixed assessments highlight the ongoing challenges Dollar General faces in the retail sector. While some analysts believe the worst may be over, others are waiting for stronger evidence of a turnaround before turning more bullish.
Earning Report Summary
Dollar General’s latest earnings report gave investors plenty to digest as the company navigates a tough retail environment. While sales ticked higher, profits took a hit, and management is still working to steady the business amid cost pressures and shifting consumer habits.
Sales and Revenue Trends
Dollar General pulled in $10.2 billion in revenue this past quarter, a 5% increase from the same time last year. That growth was mostly fueled by new store openings, as well as a slight bump in same-store sales, which rose 1.3%. More customers spent slightly more per visit, but sales were primarily driven by consumables—everyday essentials—while discretionary categories like home goods, seasonal items, and clothing saw declines.
Profit Margins and Cost Pressures
Even with higher sales, profits were squeezed. The company’s gross profit margin dipped slightly to 28.8%, weighed down by markdowns, inventory shrink (damaged or stolen goods), and a heavier mix of lower-margin items like groceries. Some relief came from lower transportation costs and better inventory management, but it wasn’t enough to offset the broader margin pressure.
On the cost side, operating expenses climbed, hitting 25.7% of sales, compared to 24.5% a year ago. A big chunk of that increase came from hurricane-related expenses, higher labor costs, and store improvements. In fact, the company had to absorb nearly $32.7 million in hurricane-related costs alone this quarter.
Earnings Take a Hit
Higher costs meant lower profits. Operating income fell 25.3% to $323.8 million, while net income dropped nearly 29%, landing at $196.5 million. That translated into earnings per share (EPS) of $0.89, down from $1.26 last year. While the company remains profitable, it’s clear that rising costs and margin pressures are taking a toll.
Inventory and Store Growth
Dollar General has been working to get its inventory under control, and it showed this quarter. Inventory levels were down 7% per store, a sign that management is keeping a close eye on stock levels to match demand. Meanwhile, store expansion remains a priority. The company opened 207 new stores, remodeled 434 locations, and relocated 27 stores over the last three months. For the full year, it still plans to open 575 new stores.
Cash Flow and Shareholder Returns
The company didn’t repurchase any stock this quarter, leaving $1.4 billion still available under its current buyback authorization. Given the current financial challenges, it seems like leadership is focused on keeping cash on hand rather than aggressively returning capital to shareholders.
Looking Ahead
For the rest of the year, Dollar General expects sales growth to land between 4.8% and 5.1%, though some lingering hurricane-related costs could drag on results. Management is staying cautious, and while the company is still growing, it’s clear that profitability remains a key challenge moving forward.
Financial Health and Stability
Dollar General’s business model is simple: sell essential goods at low prices in areas where competition is limited. That formula has worked well for years, but recent earnings reports show some cracks.
- Revenue increased 5% year over year, reaching $40.17 billion.
- Profit margins have been shrinking, with net profit at just 3.33%.
- Quarterly earnings declined by nearly 29%, a worrying sign.
- Return on equity remains strong at 19.37%, though it has slipped from past levels.
The biggest challenges for the company include inflation, wage pressures, and rising retail theft. These factors are squeezing margins, and the company is having trouble passing those costs on to customers without sacrificing sales volume.
Still, Dollar General continues expanding, opening stores in underserved markets. That long-term growth strategy could help offset some of the current struggles, but management needs to get costs under control.
Valuation and Stock Performance
Dollar General’s stock has taken a serious hit, falling more than 50% from its peak. But that drop has made its valuation look more attractive.
- The forward price-to-earnings (P/E) ratio sits at 12.59, which is cheap for a company with a history of strong earnings.
- The enterprise value-to-EBITDA ratio is 11.49, a discount compared to previous years.
- The price-to-sales ratio is just 0.42, an unusually low level for a retailer with stable revenue.
Despite these seemingly low valuation multiples, the market isn’t convinced that the worst is over. The stock is trading near its 50-day moving average of $73.46, but well below its 200-day moving average of $95.26, suggesting the longer-term trend is still negative.
For investors willing to wait, there’s an argument that the stock could recover if management stabilizes earnings. But until there’s clear evidence of a turnaround, the stock may continue to face pressure.
Risks and Considerations
Dollar General has long been a reliable retailer, but it isn’t without risks. Here are a few factors investors should be aware of:
- Debt Load – The company’s debt-to-equity ratio is high at 239.24%. While it has manageable interest payments today, any worsening of its financial position could create problems.
- Earnings Pressure – The latest earnings report showed a nearly 29% drop in profitability. If that trend continues, it could put dividend growth at risk.
- Competitive Landscape – While Dollar General has a unique market position, it still faces increasing competition from Walmart, Amazon, and other discount retailers.
- Retail Challenges – Theft, inflation, and labor costs have been eating into margins. These headwinds are difficult to control and could linger.
- Stock Volatility – The stock has been highly volatile, and while it has a relatively low beta of 0.44, its recent selloff shows it isn’t immune to sharp declines.
Final Thoughts
For dividend investors, Dollar General presents an interesting case. The 3.10% yield is much higher than its historical average, and the payout ratio is conservative, making the dividend appear safe for now. The five-year dividend growth rate of 13.5% also demonstrates management’s commitment to shareholder returns.
However, the company is dealing with real challenges, including falling earnings and a high debt burden. The valuation looks attractive, but investors should be patient and watch upcoming earnings reports closely.
If you’re looking for a dividend stock with long-term potential and can tolerate some uncertainty, Dollar General might be worth keeping on your radar. But it may take time for the business to regain its momentum.
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