What is the Best Dollar Store Stock for Investors? FDO, DG & DLTR

ABC has recently noted that dollar stores are now a $56 billion industry and are opening new locations faster than Starbucks, but which dollar store stock is the best dollar store stocks: Family Dollar Stores, Inc. (NYSE: FDO), Dollar General Corp. (NYSE: DG) or Dollar Tree, Inc. (NASDAQ: DLTR)? Given how poor the economy is in many parts of the country, dollar stores have been a godsend for consumers and especially small towns because they grab empty store fronts and cater to customers like single mothers earning $25k or less a year. Moreover, most dollar stores have little need to spend money on expensive advertising because after all, everyone knows they are cheap. On the other hand, inflation means that not everything in a dollar store is actually priced $1 (and may not be such a great deal when you run the math on product size verses price) plus the bigger chains have been spending money to transform their stores with wider aisles, better lighting and by adding name brands rather than “unwanted” merchandise. With that in mind, hare is a closer look at dollar store stocks Family Dollar Stores, Dollar General Corp. and Dollar Tree:

Family Dollar Stores, Inc. (NYSE: FDO) Also Pays a Dividend of Nearly $1

The first Family Dollar Store opened in Charlotte, North Carolina, back in 1959. Today, the Family Dollar Store has more than 6,800 stores around the country. On Wednesday, Family Dollar Stores rose 3.1% to $66.48 (FDO has a 52 week trading range of $53.03 to $74.73 a share) for a market cap of $7.67 billion plus the stock is up 15.3% since the start of the year and up 227.5% over the past five years. Family Dollar Stores has a trailing P/E of 18.57 and reasonable forward P/E of 13.79 plus it pays a forward dividend of $0.84 for a dividend yield of 1.20% (Note: FDO has sped up its latest dividend payment ahead of the fiscal cliff). In early October, Family Dollar Stores reported a 10.8% sales increase to $2.36 billion, a 5.4% same store sales increase and a net income rise from $79.8 million to $80.9 million (Impacted by a $11.5 million litigation charge). For the whole fiscal year, Family Dollar Stores reported a net sales increase of 9.2% to $9.33 billion, a comparable store sales increase of 4.7% and net income of $422.2 million verses $388.4 million. Family Dollar Stores’ chairman and CEO did note that the company’s goals for the next three to five year include 5% to 7% net new store growth, mid-single-digit comp sales growth, expansion of the operating margin and double-digit EPS growth.

Dollar General Corp. (NYSE: DG) Has a Not So Rosy Forecast

Dollar General is the nation's largest small-box discount retailer with 9,961 stores located in 39 states (as of March 2, 2012), primarily in the southern, southwestern, midwestern and eastern USA. On Wednesday, Dollar General rose 3.38% to $44.39 (DG has a 52 week trading range of $39.83 to $56.04 a share) for a market cap $14.59 billion plus the stock is up 7.9% since the start of the year and up 95.3% since late 2009. Dollar General has a trailing P/E of 17.00 along with a forward P/E of 13.33, but the stock pays no forward dividend. Earlier this week, Dollar General announced that it will soon sell cigarettes and tobacco products in its stores at the request of managers and consumers, but the company’s CEO did note that tobacco products have small margins, a dwindling customer base and that "it's a dying category.” However and while Dollar General just posted a bigger-than-expected rise in quarterly profit and total sales in line with Wall Street, sales at stores open at least a year rose less than some analysts had expected while its profit forecast suggests that this quarter's profit and margins will miss estimates due to increased competition in pricing and ramped-up advertising. Dollar General also noted that the company is seeing a more pronounced paycheck cycle where sales are strongest around the time shoppers get their paychecks and a drop at other times as “there's more days than there is dollars."

Dollar Tree, Inc. (NASDAQ: DLTR) Is More Optimistic

With origins dating back to the early 1950s, Dollar Tree operated 4,351 discount variety retail stores (As of January 28, 2012) in 48 states under the names of Dollar Tree, Deal$, Dollar Tree Deal$, Dollar Giant and Dollar Bills. On Wednesday, Dollar Tree rose 1.76% to $38.65 (DLTR has a 52 week trading range of $37.12 to $56.81 a share) for a market cap of $8.78 billion plus the stock is down 7% since the start of the year but its up 296.5% over the past five years. Dollar Tree has a trailing P/E of 15.53 and a forward P/E of 13.71, but the stock pays no dividend. In addition, Dollar Tree’s shares are off from their summer highs over growth concerns. However, Dollar Tree has recently reported a 7.8% sales increase to $1.72 billion as sales at newer stores were unusually strong, a same-stores sales increase of 1.6% (below the 2.4% expected by Wall Street), net income of $155.4 million verses $104.5 million and gave a forecast for holiday-quarter earnings above most analysts' estimates. Dollar Tree had noted that anxiety about the elections and the fiscal cliff had pressured sales.

The Bottom Line.Right now, it would appear that dollar store stock Family Dollar Stores is a better value for investors followed by Dollar Tree while Dollar General Corp. appears to be hitting a soft patch.