The Motley Fool: Considering Dollar General
Retail companies have been through the gauntlet. The pandemic, rising inflation and shifts in consumer spending have pressured the stock performance of many retail companies. Slowing sales at Dollar General (NYSE: DG) have sent its stock down, but after falling more than 70% from its 2022 highs, it might be one of the most undervalued retail stocks right now. The company has continued to pay quarterly dividends, and its dividend yield was recently a solid 3%.
Dollar General is still reporting positive sales growth, and its new “Back to Basics” strategy – aimed at improving store staffing, merchandising and the supply chain – could lead to better earnings growth. Shares could be a bargain as management executes the turnaround plan in the new year, because its struggle with higher costs is reflected in the stock’s valuation.
The Back to Basics plan is bringing automation to fulfillment centers, which should save money and improve profit margins. Dollar General is also improving its supply chain to increase in-stock items on store shelves, and making stores cleaner and more shopper-friendly. Those stores are smaller and more conveniently located for many shoppers than big-box stores like Walmart – not everyone wants to visit a large store, especially when they need just a few essentials.
Given the company’s long history of growth and the promise of the Back to Basics plan, Dollar General warrants a closer look from long-term investors.
My Smartest Investment
I’m a retired firefighter who started his career in 1971 making $8,200 per year. The smartest investment move for my wife and me was to never live above our means and to save and invest whenever we could. For the first five years I worked, I never spent a pay raise I received. Our philosophy was that if we could live last month on what we earned, without using debt, then we should be able to live next month on the same income. So every raise went into my credit union account through direct deduction.
We used that same philosophy our entire lives and never got in debt other than a mortgage and an occasional car payment. (Generally, when the car was paid off, we kept making payments to ourselves so we could pay cash for the next car.) – C. M., Fredericksburg, Virginia
The Fool responds: Bravo! Each of us should be living below our means – which helps us save and invest for our futures and not go into debt. As you noted, some debt can be unavoidable, such as when you want to buy a home. But credit-card and other high-interest-rate debt can snowball and make life miserable, so do everything possible to avoid it.
(Do you have a smart or regrettable investment move to share with us? Email it to TMFShare@fool.com.)
Ask the Fool
Q. What are UITs? – online
A. A “unit investment trust” (UIT) is a form of investment company similar to a closed-end mutual fund, which sells a fixed number of shares at its outset – and no more. It raises money from investors based on a specified investment strategy, typically via a one-time public offering of “units” (which are like shares).
That money is invested in a mostly fixed portfolio of stocks, bonds and/or other securities. That might be perfect if you want to own those same stocks or bonds no matter what; it’s not so great if you prefer to have fund managers actively buy and sell over time, based on the performance of each security, changing trends and the overall economy. But you might prefer it to a mutual fund based on factors like lower fees or tax advantages.
Some UIT units can be sold back to the company or traded on a secondary market, but others must be held until the investment is terminated at a predetermined date, when proceeds are distributed among unit holders. You can learn more about UITs by searching for the term at Investor.gov and Google.
Q. Can you recommend an online inflation calculator? – S.P., South Bend, Indiana
A. Sure. You’ll find a versatile one at Calculator.net – once there, click “Inflation Calculator” and you’ll be shown three calculators. The top one shows what something that cost a certain dollar amount at a given point in time would cost at another. The middle calculator can help you see what something may cost in the future, while the bottom one helps you see the purchasing power of money in the past.
Note that over the past 100 years, inflation in the U.S. has averaged about 3.2% per year.