Dollar Stores are Safe Bet in Recession
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With the recession sending shoppers scrambling for coupons and looking for bargains to make the most of their green backs, three retail stores have been a phenomenal success in recent years despite the down economy. Looking forward it may take a while for most Americans to get out of this mentality, which is not a bad thing by no means. If we all lived more like grandma and grandpa who survived the Great Depression, maybe we would not be in the financial shape we are in now? Which leaves specialty retailers, Dollar General Corp (NYSE: DG), Dollar Tree Inc (NASDAQ: DLTR), and Family Dollar Stores Inc (NYSE: FDO) asking, "The economy is bad for whom?"
No one can deny the huge success of Dollar Tree. Think of all the happy investors who bought this at around $19 per share in 2008 and watched as it grew 400% to a price per share of around $110! That was before the 2 for 1 share split on July 12, 2012 that now gives investors a more attractive entry point and will spur long term growth. DLTR has seen a 52 week change of +66.12%, and five year earnings growth of 26.72%. The big question is can Dollar Tree still make long term investors money? I think so as Bob Sasser, the company President and CEO, is committed to bringing value to long term investors. As of April 28, 2012 Dollar Tree operated 4,451 stores across 48 states and in Canada.
Family Dollar Stores have seen a huge rise in value since 2008 as well. They are the only one of the three to pay an annual dividend at $0.84 per share. I sincerely doubt anyone is running out and buying this for the dividend. The ones that are buying this stock for the long term are doing it on past growth performance and with the understanding that the economy is not out of the tank yet. This is a great place to put some cash and watch it grow just like it has in the past with five years earnings growth of 19.93%! FDO focusses on competitive advantages such as, they lease their store locations minimizing up-keep and renovation costs, and giving them the option of changing locations at the end of each lease. They purchase goods from 1400 suppliers which helps keep costs low and insures quality above the industry standard. With strategically placed warehouses and distribution centers they have cut their shipping and fuel costs to keep them at a minimum with an average distance of 276 miles between the centers and the 6,173 stores.
Recently Bank of America Merrill Lynch raised Dollar General Stores price target from $56 to $60 per share. DG is currently trading at $52.71 per share, and is right under it's 52 week high of $53.06. They have had a five years earning growth of 38.24% and it looks like they are still growing strong. With stronger earnings growth and a lower price per share than the other two companies, I believe the potential for big returns and gains is still there for DG. They have over 10,000 store locations in 40 states. They have added another competitive advantage as well, The Dollar General Market, where they have expanded their grocery section to provide fresh produce, dairy, and meat at low prices without sacrificing quality, all with a money back guarantee. Which will spur further growth and be attractive to long term investors. The ability to expand their business shows a willingness to compete with stores like Wal-Mart.
As people continue to hunt for jobs in this challenging job market, consumers will continue to shop for bargain prices and discount products, which makes investing in all or any of these companies a way to grow assets in this changing economy. Like Grandpa always said, "Every little bit helps," and "watch your pennies and the dollars will take care of themselves."
TSDavis75 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.