Last update on 2024-06-27

Dollar General (DG) - Dividend Analysis (Final Score: 3/8)

Discover an in-depth dividend analysis of Dollar General (DG), assessing its stability and performance using an 8-criteria scoring system. Final score: 3/8.

Short Analysis - Dividend Score: 3

We're running Dollar General (DG) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The analysis on Dollar General (DG) assesses its dividend policy using 8 criteria and results in a score of 3. While DG shows steady growth in its dividends, the yield is slightly lower than the industry average, and its growth rate misses the desired 5%, indicating some instability. However, DG's payout ratio is well below 65%, suggesting strong retained earnings for growth. Its dividends are well covered by earnings, though coverage by cash flow has exhibited fluctuations. DG started paying dividends in 2013 with some variability, but without exceeding a 20% decline in any year. It hasn't paid dividends for over 25 years, but it has performed reliable stock repurchases, reducing share count and showing a commitment to shareholder returns.

Insights for Value Investors Seeking Stable Income

Given DG's steady dividend payout and strong payout ratio, it's worth considering. However, potential investors should be cautious due to its unstable growth rate and fluctuating cash flow coverage. Those seeking a more reliable income stream might consider other companies with more consistent dividend history and higher yield. For long-term growth, DG’s robust share repurchase program and financial health could make it a good choice.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is a key metric for income-focused investors, as it indicates the percentage of a company’s share price that is paid out in dividends each year. It helps investors evaluate the income-generating potential of an investment relative to its stock price.

As of the most recent year (2023), Dollar General's dividend yield is 1.3019%, which is slightly lower than the industry average of 1.51%. Over the past 20 years, Dollar General has shown a considerable improvement in dividends, initiating payouts in 2015 and maintaining an upward trend. Despite its current lower yield compared to the industry, the steady growth in dividends paid per share—from $0.88 in 2015 to $1.77 in 2023—demonstrates Dollar General's commitment to returning value to shareholders. This trend is positive overall, although the lower yield might make it less attractive compared to peers with higher yields.

Average annual Growth Rate higher than 5% in the last 20 years?

Dividend Growth Rate indicates the annualized percentage growth rate of a company's dividend payouts over time. It's an important measure for dividend investors as it signifies a stable and improving income stream.

Based on the provided data, Dollar General has experienced a highly variable Dividend Growth Rate over the last 20 years, with significant spikes and drops, such as 44.8718% in 2018 and -32.4427% in 2023. The average Dividend Growth Rate sits at 4.958%, which is just shy of the desired 5% threshold. While certain years show robust growth, consistent negative changes indicate instability. This trend is therefore a cautionary indicator rather than a positive one, suggesting that while there are periods of strong growth, the overall dividend strategy may lack stability.

Average annual Payout Ratio lower than 65% in the last 20 years?

Average Payout Ratio lower than 65% indicates that the company is retaining a significant portion of its earnings for growth and other financial needs. It suggests financial health and sustainability of dividend payments.

Analyzing Dollar General's payout ratio over the past 20 years, we observe a notable trend. From 2003 to 2014, the payout ratio was consistently at 0%, indicating no dividend payments during this period. However, from 2015 onwards, there are measurable payout ratios ranging from 15.1423% to 25.5817%. The average payout ratio across these 20 years stands at approximately 8.92%, well below the 65% threshold. This trend is favorable as it reflects that Dollar General has ample retained earnings to fuel growth initiatives, while also maintaining sustainable dividend payments in recent years. It demonstrates a balanced approach between rewarding shareholders and investing in company expansion.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings means the company generates enough profit to not only grow but also sustain its dividend payout without financial strain.

Dollar General (DG) has displayed an improving trend in its Earnings per Share (EPS) over the years, rising from 0.7908 in 2003 to 10.7307 in 2023. Notably, the Dividend per Share (DPS) also began to increase in 2015 from 0.88 to 1.77 in 2023. The coverage ratio, calculated as Dividends per Share being covered by EPS, has been fairly consistent. For instance, the ratio was 0.252 in 2015 and 0.165 in 2023. This indicates that their dividends are well covered by earnings, representing a balanced approach towards dividend distribution relative to the company’s profits. This is a positive trend showing that DG is maintaining a sustainable dividend policy.

Dividends Well Covered by Cash Flow?

This criterion examines if the company's dividends are sufficiently covered by its free cash flow, which indicates the firm's capacity to maintain dividend payments without financial strain.

Generally, it is considered healthy if a company's dividends are covered at least 1.5 to 2 times by its free cash flow. In the case of Dollar General, there are significant fluctuations in the coverage ratio through the years. From 2003 to 2023, the lowest coverage ratio was around 0.05 in 2008, indicating poor coverage and potential strain. More recently, the coverage ratio improved significantly in 2023, peaking at approximately 1.16. This sharp increase might be attributed to a higher free cash flow, which addresses prior concerns regarding dividend sustainability. Notably, between 2021 and 2022, the ratio was considerably low, raising questions about the firm's dividend strategy. While the trend shows improvement, such volatility warrants careful monitoring, especially for income-focused investors.

Stable Dividends Since the Company Began Paying Dividends?

Dividend stability over the past 20 years.

The data indicates that Dollar General (DG) did not have dividend payments from 2003 to 2012. The dividend per share (DPS) started in 2013 at $0.88 and has shown variability, with specific decreases noticeable in 2017 and 2023. However, the decline in any given year did not exceed the 20% threshold. Furthermore, the highest DPS was $2.62 in 2022. Stability in dividends is crucial for investors seeking reliable income sources, and while Dollar General has made dividends volatile since 2013, it did not drop by the critical 20% benchmark.

Dividends Paid for Over 25 Years?

Explanation of dividends paid for over 25 years criterion and its importance.

Analysis based on the given data and trend regarding Dollar General's dividends paid over the years and what it signifies.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases indicate a company's strategy to return value to shareholders, potentially increasing EPS and providing a bullish sign.

Over the past two decades, Dollar General (DG) has exhibited consistent stock repurchasing activities in numerous years including 2005-2007 and 2013-2023. This is generally a positive indicator as it suggests the company is actively working to return value to its shareholders and potentially increasing its earnings per share (EPS). The overall average reduction in number of shares at -1.9284% per year is generally a good trend, as reducing the share count can enhance shareholder value. However, the reliability of this trend is crucial to ascertain, and Dollar General has shown robust consistency in repurchases, reflecting strong financial health and a commitment to shareholder returns.