Wal-Mart Stores, Inc. (WMT), Target Corporation (TGT), Dollar General Corp. (DG): The Dividend Fad, Consider These Retail Regulars

Just a Dollar

Another retailer on the Aristocrat list that competes with Wal-Mart Stores, Inc. (NYSE:WMT) is Family Dollar. The company operates a chain of over 7,500 stores across 45 states. The shops are tiny compared to cavernous Wal-Marts, but that means that they can be located more closely to customers. That’s an important selling point for the lower income group that Family Dollar targets. Being closer also allows the company to charge higher prices than Wal-Mart on similar items.

The company’s top line has grown every year for the past decade, with earnings increasing from around $1.40 per share in 2003 to a touch over $3.50 last year. The dividend yield is around 1.5%. As long as Family Dollar has a lock on the proximity angle, it should be able to compete with Wal-Mart Stores, Inc. (NYSE:WMT) even though it has higher price points.

The stock, however, has been on a steady accent. Of the trio, it sports the highest price to earnings ratio at about 19. Wal-Mart Stores, Inc. (NYSE:WMT)’s PE is around 15, while Target Corporation (NYSE:TGT)’s is in the 17 range. Family Dollar is most appropriate for growth investors.

Big is Good, But…

Being the big fish is a good thing and should serve Wal-Mart Stores, Inc. (NYSE:WMT) well over time. That said, Wal-Mart is relatively cheap, but also has the least impressive growth prospects of the three retailers. Both Target Corporation (NYSE:TGT) and Family Dollar have unique niches that should let them prosper in the giant’s shadow for years to come, and their valuations appear supported by their rosier growth outlooks.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article The Dividend Fad, Consider These Retail Regulars originally appeared on Fool.com.

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