Friday, July 2, 2010

Family Dollar Stores Stock Analysis

Family Dollar Stores, Inc.(FDO) operates a chain of self-service retail discount stores for low to lower-middle income consumers in the United States. The company is a member of the S&P Dividend Aristocrats index, after raising distributions for 34 consecutive years.

Over the past 10 years this dividend stock has delivered an annual average total return of 9 % to its shareholders. After peaking at 44 in late 2003, the stock fell all the way down to 15 in 2007, before recovering all the way to 40.

At the same time company has managed to deliver an impressive 8.40% average annual increase in its EPS over the past nine years.

The ROE has been hovering in the 18% - 21 % range over the past 10 years, with the exception of a brief dip in 2005 and 2006.

Annual dividend payments have increased over the past 10 years by an average of 10.10% annually, which is higher than the growth in EPS. A 10% growth in dividends translates into the dividend payment doubling almost every seven years. If we look at historical data, going as far back as 1976, FDO has actually managed to double its dividend payments every five years.

The dividend payout ratio expanded slightly over the past decade but remained under 30% throughout the period. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

FDO is attractively valued with its low price/earnings multiple of 16.30. The current dividend yield of 1.60% is low for my taste. I would consider adding a partial position on dips below $31.

Disclosure: Long FDO

Relevant Articles:

- Wal-Mart (WMT) Dividend Stock Analysis
- A dividend portfolio for the long-term
- Three Dividend Strategies to pick from
- Busy week for dividend increases

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