Dollar General Corporation (NYSE:DG) Pays A US$0.59 Dividend In Just Two Days

Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Dollar General Corporation (NYSE:DG) is about to go ex-dividend in just two 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. Therefore, if you purchase Dollar General’s shares on or after the 8th of April, you won’t be eligible to receive the dividend, when it is paid on the 23rd of April.

The company’s upcoming dividend is US$0.59 a share, following on from the last 12 months, when the company distributed a total of US$2.36 per share to shareholders. Calculating the last year’s worth of payments shows that Dollar General has a trailing yield of 1.5% on the current share price of US$159.04. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! 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 31% of profit. A useful secondary check can be to evaluate whether Dollar General generated enough free cash flow to afford its dividend. Dividends consumed 75% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organisations.

It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.

Story continues

Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it’s a relief to see Dollar General earnings per share are up 4.8% per annum over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company’s prospects for future growth.

Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the last nine years, Dollar General has lifted its dividend by approximately 12% a year on average. We’re glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Has Dollar General got what it takes to maintain its dividend payments? Earnings per share growth has been modest, and it’s interesting that Dollar General is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. In summary, it’s hard to get excited about Dollar General from a dividend perspective.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Case in point: We’ve spotted 2 warning signs for Dollar General you should be aware of.

Generally, we wouldn’t recommend just buying the first dividend stock you see. Here’s a curated list of interesting stocks that are strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.