Costco Wholesale Corporation (COST), Dollar General Corp. (DG): What Is Wal-Mart Stores, Inc. (WMT) Signaling About the Health of the U.S. Consumer?

This dynamic helps to explain Costco Wholesale Corporation (NASDAQ:COST)’s continued success and the rising popularity of dollar stores, including Dollar General Corp. (NYSE:DG), in conjunction with Wal-Mart’s struggles.

A pivotal time ahead

On the horizon for all retailers, including Wal-Mart, are the crucial back-to-school and holiday shopping seasons.

There are more than enough headwinds to suggest these sales seasons could disappoint, including tepid job growth and higher taxes.

If recent results are any precedent, Wal-Mart could continue to suffer and its stock price may be stuck in the doldrums for the time being.

From a long-term perspective, though, I still think Wal-Mart is a good bet. For better or worse, Wal-Mart has a deeply entrenched customer base.  It’s not as if Wal-Mart suddenly lost the execution abilities that made it the biggest retailer in the U.S.

And, investors are treated to one of the most shareholder-friendly companies in existence. Wal-Mart returned $3.4 billion to shareholders in dividends and share buybacks in the second quarter alone. The company has a long track record of sharing its success: Wal-Mart recently increased its dividend by 18%, and has increased its payout every year since the first declared dividend in 1974.

Wal-Mart will remain strongly profitable for years to come and will continue to reward its shareholders with an above-average dividend yield.  If you’re only interested in going where the growth is, however, in the current environment you’d be wise to favor Costco or Dollar General instead.

The article What Is Wal-Mart Signaling About the Health of the U.S. Consumer? originally appeared on and is written by Robert Ciura.

Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool owns shares of Costco Wholesale.

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