Dollar General Shares Drop 72%, Strong Dividend Yield Persists

Dollar General's stock has plummeted 72%, raising concerns but also making it appealing for dividend investors. The dividend yield is 3.3%, significantly above the S&P 500 average. This analysis highlights the mixed outlook for Dollar General’s stock performance.

Date: 27-01-2025

AI Rating: 6

Dollar General's Stock Performance

Shares of Dollar General have seen a notable decline, down 72% from its all-time high, marking a significant reduction since going public again in 2009. This drop in stock price offers a unique opportunity for those looking to invest in dividend stocks due to the attractive dividend yield.

Dividend Yield and Performance

The current dividend yield for Dollar General stands at 3.3%, which is nearly triple the average yield of the S&P 500, which has fallen to about 1.2%. This makes Dollar General an appealing option for income-focused investors. Given that the company has consistently paid dividends since 2015 without any missed payments and has raised dividends for eight consecutive years prior to 2024, there is a strong commitment to maintaining the dividend in the future.

Earnings Per Share (EPS)

However, there are concerns surrounding the company's future profitability. The projected diluted earnings per share (EPS) for the upcoming year is between $5.50 and $5.90, reflecting a substantial 25% decrease from the previous year. This declining trend in earnings poses a risk since dividends are paid out of earnings, which could complicate management's ability to maintain the current dividend levels.

Net Income and Payout Ratio

Despite these challenges, Dollar General’s net income was about $200 million in the recent quarter, which means it is still able to support its $130 million quarterly dividend. This results in a payout ratio of 38.8%, which is generally viewed as a healthy ratio, suggesting that the dividend is sustainable even with the anticipated drop in earnings.

Profit Margins and Future Outlook

The company is reportedly addressing its profitability problems related to inventory management, theft, and markdowns. Management’s efforts to improve inventory levels indicate optimism for recovery, which may lead to stabilizing or increasing earnings in the future.

Despite the current pressures on earnings and stock price, the commitment to the dividend and the potential for improved profitability in the future present a complex investment scenario. Investors should consider these factors when evaluating Dollar General's stock.

Stocks: DG