Yahoo Finance Why You Might Be Interested In Dollar General Corporation (NYSE:DG) For Its Upcoming Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Dollar General Corporation (NYSE:DG) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Dollar General's shares before the 9th of July in order to be eligible for the dividend, which will be paid on the 23rd of July.
The company's next dividend payment will be US$0.59 per share, on the back of last year when the company paid a total of US$2.36 to shareholders. Last year's total dividend payments show that Dollar General has a trailing yield of 1.9% on the current share price of US$125.43. If you buy this business for its dividend, you should have an idea of whether Dollar General's dividend is reliable and sustainable. As a result, readers should always check whether Dollar General has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Dollar General
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Dollar General's payout ratio is modest, at just 34% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 44% of its free cash flow in the past year.
It's positive to see that Dollar General's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Dollar General earnings per share are up 2.8% per annum over the last five years. Recent growth has not been impressive. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, nine years ago, Dollar General has lifted its dividend by approximately 12% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is Dollar General worth buying for its dividend? Earnings per share have been growing moderately, and Dollar General is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Dollar General is halfway there. Overall we think this is an attractive combination and worthy of further research.
While it's tempting to invest in Dollar General for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 3 warning signs for Dollar General you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
