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No Bang for Buck: Dollar General Beats, Stock Slumps

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Part 5
No Bang for Buck: Dollar General Beats, Stock Slumps PART 5 OF 6

Dollar General’s Stock Plunges Despite Earnings Beat, Guidance Raise

Dollar General enters the red after its fiscal 2Q17 results

Despite Dollar General’s (DG) earnings and revenue beat and guidance raise, investors seemed unimpressed. The company’s stock price plunged 5.4% to $72.56 after it released its results on August 31. Investors were likely concerned about DG’s declining margins, which reflect the broader issues surrounding the retail sector.

Dollar General’s Stock Plunges Despite Earnings Beat, Guidance Raise

DG’s YTD (year-to-date) stock market gains were reduced to a YTD loss of 2.1% after the fiscal 2Q17 results. Competitor Dollar Tree (DLTR), which recently reported better comps (comparable same-store sales) and margins, is now looking at a YTD profit of 5.1%.

Big-box retailers Wal-Mart Stores (WMT) and Costco Wholesale (COST) are also in positive territory, having gained 13.4% and 2.8%, respectively, YTD. Supermarkets Kroger (KR) and Supervalu (SVU), however, are deep in the red, having tumbled a ~35% and ~39%, respectively, YTD.

Weaker-than-expected financial results and fears surrounding the grocery sector after Amazon.com’s (AMZN) recent acquisition of Whole Foods Market were behind the falling stock prices of these two food retailers.

Dividends and share repurchases

Dollar General repurchased one million shares for $75 million in fiscal 2Q17. It also paid a quarterly dividend of $0.26 per share, totaling $75 million. DG has returned $306 million to shareholders YTD by repurchasing 2.3 million shares and paying dividends.

Comparing dividend yields

Dollar General has a dividend payout of 23%, and its stock offers a dividend yield of 1.4%. By comparison, dividend aristocrat retailers Target (TGT) and Walmart have dividend yields of 2.6% and 4.5%, respectively.

Investors looking for exposure to DG through ETFs can consider the Van Eck Retail RTF (RTH), which invests 2.8% of its total holdings in DG.

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