New Purchases – Family Dollar (FDO) – 04/08/14

I’m reporting my automatic purchases for this week:

I Bought:

$200 of DE (John Deere)
$200 of FDO (Family Dollar)
$100 of V (Visa)

I used $500 in new capital and added $9.42/year to my dividend income.  This is an average yield of  1.9%.

Note:

I’m trying to look outside of the energy sector since I’m overweight there.  Both DE and V I already own and want to increase my exposure to since they are underweight.

Family Dollar, however, is a new position for me.  In my latest monthly 10-year YOC CCC screening, FDO came up on my list.  Their stock price has dropped recently on earnings concerns.  This drop coupled with a high dividend growth rate, boosted them onto my screen.

FDO is a Dividend Champion, having raised their dividend for 38 straight years!  Their 10-year, 5-year, 3-year and 1-year CAGR’s are 13.6, 16.2, 20.1 and 23.8 respectively.  So obviously they have been accelerating their dividend growth recently.  While I don’t expect them to keep a 20% dividend increase each year, I do think they can grow it by a significant amount.  Their most recent dividend raise was declared on 03/03 having increased their dividend from 0.26 to 0.31, a 19.2% increase.  Their starting yield is close to 2% but they have a low payout ratio near 30% which gives them plenty of room to grow.

Having lived in Texas my whole life, I see Family Dollar stores everywhere.  I enjoy investing in companies that I can actually relate to.  I also think their stores are clean and well organized for the most part.

The bottom line is that I think FDO may be under weakness for a while but I believe they can be a great hedge against another recession.  If history is any guide, they came out extremely strong from this last Great Recession.

Dan Mac over at Dividend Growth Stock Investing had a timely analysis of Family Dollar that you can find here.  He didn’t have exactly the same conclusion but he makes some great points.

There’s also some good Seeking Alpha articles here.

Picture:

Just for some fun and to add some color I will be posting pictures of places I’ve been to.  It’s also motivation to reach FI so I can travel and do what I want to when I want to.

This week I was a little lazy and posted a picture of a Family Dollar store.

Comments

    • says

      RBD,

      It’s very impressive and I don’t expect to keep the 20% raises up but I do expect double-digit raises for a while. They are under earnings pressure so the cost-cutting should help long-term.

      Take care!

  1. says

    I have been looking into FDO for the dividend growth myself. Kind of retailer I like. They sell necessities and at low prices.

    I live in Texas also and drive by one each day to work! There always seems to be a good number of cars in the parking lot.

    Will have to look into this one more!
    ILG

    ILG

  2. says

    ILG,

    I like the products they sell and the diversification they bring to my portfolio. I think they will be a long-term hold for me. The low starting yield doesn’t bother me much when they have high growth and a low payout ratio.

    Well then you certainly see them a lot as well. They have more stores in Texas than anywhere else I believe.

    Thanks for stopping by. I just read your story and enjoyed it.

  3. says

    Interesting buy with FDO. I don’t think I could pull the trigger on them because too many other companies I want to invest in! Especially with the recent pullback, my buying goggles are back on. :) On another note, looks like your cost basis on your portfolio is off on FDO. Unless you just happened to pick it up at the same price as GIS @ $44.17, which I don’t think FDO has traded that low for a few years now. :)

    • says

      Hi Trevor,

      I agree, there’s a lot of good companies out there. The market is still fairly elevated in my opinion. I bought based on dividend growth and recession hedge.

      Thanks for pointing that out. I shifted a row down for FDO and it was taking the cost basis for GIS. It’s now fixed. I’d load up if it ever hits $44.

      Thanks for stopping by!

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