Dollar General
I've owned Dollar General previously this year. I built up a position of 15 shares by buying the stock at $207 in April and $206 at the end of May. I sold the position in August near this year's peak with a 17.4% return in a couple of months. I recognize the company as an excellent defensive investment where the company is growing revenues at an attractive rate while at the same time showing good profitability. I entered the stock again as the share price had come down, and the stock took a slight beating from the earnings release. My cost basis is $219 for ten shares of the companies stock.
Growth in number of stores
Most of the company's return comes from acquiring and building new stores, as you can see from the table below the company has grown store count from 8194 in 2007 to 17915 stores in the last quarter. Land values in rural areas where Dollar General is primarily located are relatively inexpensive, which means the company can expand at a lower expense.
Dollar general stores are pretty small at an average of 7400 square feet/690 square meters, which means many small communities may be attractive places to locate a Dollar General store.
Store numbers
Dollar General has not only been dependent on building new stores to show a healthy topline growth. The company has established an impressive revenue growth per store. The average store pulled in $1.16 million in revenue in 2007, and the revenue has grown to $1.9 million in the last twelve months. The table below shows that revenue is pretty stable, except in 2020, where revenue increased by $266 540 per store.
Earnings per store have delivered healthy growth from a slight loss in 2007 to $136 452 per store following the record in 2020. If the 2021 numbers are an indication of future profitability will be interesting to see. The pandemic may have shifted consumers in rural areas to make more frequent purchases which favor going to the local Dollar General store rather than taking a longer trip to the larger supermarket.
Rewarding shareholders
I love a company that is focused on returning capital to shareholders in the form of dividends and share buybacks. Becoming a larger owner of the business without having to purchase additional shares and incurring transaction costs is great as long as the buys are made at a reasonable price. Dollar General's Price to earnings ratio has been at around 18-22 in the last ten years, which is a good indication that the capital has been well spent.
The dividend yield is not something to brag about at 0,73%, but the payout ratio is only 16% of earnings so there is ample room for increasing the dividend in the years to come.
Disclosure
Always do your own research before investing! I hope that you enjoyed this post but It should not be considered an encouragement to buy the companies that I include in my portfolio or be taken as financial advice. If you want to receive investment advice you should contact a professional.