Family Dollar Stores (FDO), Inc. operates a chain of neighborhood retail discount stores in the United States. It offers general merchandise in four categories: consumables, home products, apparel and accessories, and seasonal and electronics.
Family Dollar Stores is a dividend aristocrat as well as a component of the S&P 500 index. Over the past 10 years this dividend growth stock has delivered an annual average total return of 4.50 % to its shareholders. After peaking at 44 in late 2003 though, the stock has gone nowhere for four years.
At the same time the company has managed to deliver an impressive 12.66% average annual increase in its EPS over the past nine years.
The ROE has been hovering in the 15% - 21 % range over the past 10 years.
Annual dividend payments have increased over the past 10 years by an average of 11.20% annually, which matches the growth in EPS. A 12% growth in dividends translates into the dividend payment doubling almost every 6 years. If we look at historical data, going as far back as 1990, FDO has indeed managed to double its dividend payments every six years.
If we invested $100,000 in FDO on December 31, 1997 we would have bought 6,991 shares (Adjusted for 2:1 stock split in April 1998). Your first dividend payment would have been $314.60 in March 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend payment would have risen to $980.50 by December 2007. For a period of 10 years, your quarterly dividend income has increased by 155 %. If you reinvested it though, your quarterly dividend income would have increased by 212%.
The dividend payout has remained below 35% over the past 10 years. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
I think that FDO is attractively valued with its low price/earnings multiple of 13 and slightly above-average yield at 2.30%.
Disclosure: I own shares of FDO.