Dollar General's (NYSE:DG) Shareholders Will Receive A Bigger Dividend Than Last Year

By
Simply Wall St
Published
May 30, 2021
NYSE:DG
Source: Shutterstock

Dollar General Corporation's (NYSE:DG) dividend will be increasing to US$0.42 on 20th of July. Even though the dividend went up, the yield is still quite low at only 0.8%.

Check out our latest analysis for Dollar General

Dollar General's Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Dollar General was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to fall by 6.1% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 17%, which we are pretty comfortable with and we think is feasible on an earnings basis.

historic-dividend
NYSE:DG Historic Dividend May 31st 2021

Dollar General Is Still Building Its Track Record

Dollar General's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The first annual payment during the last 6 years was US$0.88 in 2015, and the most recent fiscal year payment was US$1.68. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Dollar General has seen EPS rising for the last five years, at 21% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Dollar General Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Dollar General that investors should take into consideration. We have also put together a list of global stocks with a solid dividend.

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