Friday, July 9, 2010

Family Dollar Stores (FDO) Dividend Stock Analysis

Family Dollar Stores, Inc.(FDO) operates a chain of self-service retail discount stores for low to lower-middle income consumers in the United States. The company is a member of the S&P Dividend Aristocrats index, after raising distributions for 34 consecutive years.


Over the past 10 years this dividend stock has delivered an annual average total return of 9 % to its shareholders. After peaking at 44 in late 2003, the stock fell all the way down to 15 in 2007, before recovering all the way to 40.



At the same time company has managed to deliver an impressive 8.40% average annual increase in its EPS over the past nine years. Analysts expect EPS to increase to $2.60 in FY 2010, followed by an increase to $2.95 in FY 2011. Increases in sales will be driven by expanding the current store count by 2%, as well as increasing same store sales as price conscious consumers purchase the company's value-priced assortment of everyday necessities.
The once cash-only stores now accept PIN-based debit card payments in most locations. Food stamp and credit card acceptance is also being rolled out.
The company has benefited from the recent financial crisis, as some middle-class consumers have traded down to its store locations for everyday items. Family Dollar also drives traffic through limited time offerings as well as stocking up on treasure hunt items which creates customer excitement.


The ROE has been hovering in the 18% - 21 % range over the past 10 years, with the exception of a brief dip in 2005 and 2006.


Annual dividend payments have increased over the past 10 years by an average of 10.10% annually, which is higher than the growth in EPS. A 10% growth in dividends translates into the dividend payment doubling almost every seven years. If we look at historical data, going as far back as 1976, FDO has actually managed to double its dividend payments every five years.

The dividend payout ratio expanded slightly over the past decade but remained under 30% throughout the period. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

FDO is attractively valued with its low price/earnings multiple of 16.30. The current dividend yield of 1.60% however is low for my taste. I would consider adding a partial position on dips below $31.

Disclosure: Long FDO

Relevant Articles:

- Wal-Mart (WMT) Dividend Stock Analysis

- A dividend portfolio for the long-term

- Three Dividend Strategies to pick from

- Busy week for dividend increases

5 comments:

  1. Curious as to how you chose $31 as the buy point?

    ReplyDelete
  2. Big fan here. I am curious as well. I assume you have an article on your methods but while I'm at it, I'd appreciate a link or explanation as to how you figure out your buy point.

    ReplyDelete
  3. Been following DGI for a while myself. He was my inspiration for getting into the stock market. I really enjoy his analysis and use something very similar when I analyze companies of interest.

    I can't speak for DGI, but my guess at the $31 price is the current yield criteria. Personally I won't invest in a stock without at least a 2% yield. At $31 the stock would yield 2.06%.

    ReplyDelete
  4. Thank you all for the comments. I did use $31 as an entry price, at which the stock would yield 2%. Because this is below my minimum yield requirement, I am only considering adding a partial position at that price.

    The company offers some outstanding profit and dividend growth, which is an important factor in a dividend portfolio.

    Or one could purchase a higher yielder like Kinder Morgan (KMP) and a lower yielder like (FDO) and be able to enjoy the high yield with the high growth component.

    ReplyDelete
  5. Thanks very much for clarifying. Again, the blog is much appreciated.

    ReplyDelete

Questions or comments? You can reach out to me at my website address name at gmail dot com.

Popular Posts