DG with Nobias Technology: Dollar General Raises Dividend by 31% as 2022 Guidance Points to Growth? (Copy)
Dollar General (DG) shares have suffered on a year-to-date basis, posting -6.26% results thus far during 2022. However, the stock is up 19.2% from the 52-week lows that it made in late February. The company recently posted Q4 results, which included double digit growth estimates for fiscal 2022. Dollar General also recently provided investors with a double digit dividend increase. Historically, the dollar store industry has provided market beating results during bear markets. And therefore, with rates on the rise and the threat of recession rising along with them, it appears that investors are becoming more and more interested in these potentially defensive shares.
Nobias 5-star rated author, Kim Johansen, published an article on Dollar General at The Markets Daily recently, breaking down the company’s fundamentals as well as news of increased shareholder returns. Regarding the stock’s recent performance, Johansen wrote: “Shares of DG stock opened at $229.63 on Friday. Dollar General Co. has a 12-month low of $178.66 and a 12-month high of $240.14. The company has a current ratio of 1.08, a quick ratio of 0.15 and a debt-to-equity ratio of 0.67. The firm’s 50 day moving average is $207.63 and its 200 day moving average is $216.64. The stock has a market capitalization of $53.21 billion, a P/E ratio of 22.49, a P/E/G ratio of 1.57 and a beta of 0.58.”
Johansen continued, saying, “Dollar General announced that its Board of Directors has initiated a stock buyback program on Thursday, December 2nd that authorizes the company to repurchase $2.00 billion in outstanding shares. This repurchase authorization authorizes the company to buy up to 3.9% of its stock through open market purchases. Stock repurchase programs are typically a sign that the company’s management believes its stock is undervalued.”
DG March 2022
Keith Speights, a Nobias 4-star rated author, recently published a report titled, “3 Stocks to Buy Now If You're Anxious About the Stock Market” which put a spotlight on Dollar General as a potentially low-risk play for nervous investors to consider. Speights touched upon the fact that rising rates have the potential to create a recession in the United States. And historically, Dollar General is the type of stock that has posted outperformance during bear markets due to its focus on value and low prices for consumers whose checkbooks may be hurting. For instance, during 2020, Dollar General saw its earnings-per-share rise by 13% (during a period of time where many of its retail peers struggled due to COVID-19 social distancing restrictions). However, as Speights points out in his piece, DG shares have also performed well throughout bull markets as well.
Regarding bull markets he said, “But what about during economic booms? Dollar General's shares trounced the S&P 500 during the 10-year period ending Dec. 31, 2021, soaring 669%. The key to that impressive gain was the retailer's strategy of adding more stores.”
Speights continued, noting that DG continues to expand its footprint, setting itself up for more sales and earnings growth ahead. He said, “Dollar General plans to add 1,100 new stores and triple the number of its suburbs-focused pOpshelf stores in fiscal year 2022. Unsurprisingly, the consensus Wall Street price target for the stock reflects a 17% premium to Dollar General's current share price.”
On March 17th, Dollar General posted its fourth quarter earnings. The company missed Wall Street estimates on both the top and bottom lines; however, the stock is still holding up relatively well. DG shares have risen by 16.02% during the past month. Although Q4 results were disappointing, it appears that forward looking guidance has appeased Wall Street.
During Q4, DG posted revenue of $8.65 billion, which missed analyst estimates by $60 million and represented 2.9% year-over-year growth. Dollar General’s Q4 non-GAAP earnings-per-share came in at $2.57, missing consensus estimates by $0.01/share.
Dollar general’s same-store-sales suffered in 2021 overall, falling 2.8% on the year. However, management noted that on a 2-year trailing basis, same-store-sales growth is 13.5%, showing that the company was up against very strong comparisons due to the company’s positive sales growth performance during 2020.
The same story was in place when it came to earning-per-share. DG’s Q4 report said, “Fiscal Year Diluted EPS Decreased 4.2% to $10.17, resulting in a two-year compound annual growth rate of 23.8%, or 22.9% compared to 2019 Adjusted Diluted EPS”.
During the Q4 report Todd Vasos, Dollar General’s chief executive officer, said: “For the full year, we are pleased with our net sales increase of 1.4%, which was on the high end of our guidance, and on top of a robust 21.6% increase in fiscal 2020. In addition, during the year, we completed the initial rollout of DG Fresh, executed more than 2,900 real estate projects, including the opening of our 18,000th store and 50 standalone pOpshelf locations, and launched new initiatives focused on health and international expansion.”
He continued, saying, “Overall, we are excited about our plans for 2022, as we look to further differentiate Dollar General from the rest of the retail landscape, while delivering long-term sustainable growth and value for our shareholders.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
DG provided 2022 guidance, saying: “Despite this uncertainty, the Company is providing financial guidance for the 53-week fiscal year ending February 3, 2023 (“fiscal year 2022”), in which the Company currently expects:
Net sales growth of approximately 10%, including an estimated benefit of approximately two percentage points from the 53rd week
Same-store sales growth of approximately 2.5%
Diluted EPS growth in the range of approximately 12% to 14%, including an estimated benefit of approximately four percentage points from the 53rd week. This Diluted EPS guidance assumes an effective tax rate in the range of 22.5% to 23.0%
Share repurchases of approximately $2.75 billion
Capital expenditures, including those related to investments in the Company’s strategic initiatives, in the range of $1.4 billion to $1.5 billion”
Also, during the Q4 report, DG made headlines raising its dividend by 31%. The company increased its quarterly dividend from $0.42/share to $0.55/share. It appears that the credible authors and analysts that the Nobias algorithm tracks have also been pleased with the company’s recent operational performance. Looking at recent articles published by credible Nobias authors (individuals with 4 and 5-star ratings), we see that 90% of opinions expressed about DG stock have been “Bullish”.
The average price target currently being applied to DG shares by the credible Wall Street analyst that our algorithm tracks (once again, only those with 4 and 5-star Nobias ratings) is $249.50. Today, DG shares trade for $220.47, meaning that this price target represents upside potential of approximately 13.2%.
Disclosure: Nicholas Ward has no DG position. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.