Many investors enjoy receiving dividends. It's a way for companies to reward shareholders with regular income by paying out a portion of their profits.
Dollar General (NYSE: DG) has become a familiar name to many with its discount stores and long history of profitable sales growth. That enabled it to become a reliable dividend payer since initiating payouts in 2015.
The retailer hasn't been performing well lately, however. Dollar General has had tepid same-store sales and falling operating profitability. That's reflected in the share price, which has dropped more than 20% this year. With that backdrop, it's instructive to investigate what might happen to Dollar General's dividend payouts next year.
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Calculating the annual payout
Dollar General had raised dividends annually from 2016 through 2023. However, the rate has remained constant after Dollar General raised the quarterly payout from $0.55 to $0.59 in April 2023. That's not a good situation for dividend investors, who prefer consistent annual increases in the long run.
Hence, I'd assume the board of directors will keep the rate constant next year. With nearly 220 million common shares outstanding, Dollar General paid $259.5 million in dividends during the first half of the fiscal year. The period ended on Aug. 2.
Since management didn't repurchase any shares last year or in the first six months of the current year, it's a safe assumption that the number of shares will stay reasonably constant. That equates to about $519 million in dividend payments for the full year and a similar amount for next year.
On a positive note, the current dividends don't seem to be in danger. Dollar General has a 38% payout ratio And the shares have a healthy 2.8% dividend yield, more than double the S&P 500's 1.3%.
Nonetheless, given the pressure on Dollar General's earnings, I'd look elsewhere for companies that continue to perform well and raise dividends regularly.
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Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
