We recently published a list of the 11 Best Retail Dividend Stocks to Buy. In this article, we are going to take a look at where Dollar General Corporation (NYSE:DG) stands against other best retail dividend stocks.

The retail industry has been undergoing a digital transformation since the COVID-19 pandemic. The industry has shifted from a broad, supply-driven model to a more data-focused, ultra-personalized approach adjusted according to individual customers. However, the transition was challenging due to elevated costs and the complexities of existing business models and legacy systems.

According to a report by Deloitte, the industry has experienced slow growth in recent years, with a compound annual growth rate ranging between 1.5% and 3.5%, depending on the sub-sectors. Profit margins also remained under pressure because of consumers’ expectations for seamless omnichannel experiences. Digital adaption was needed, but the costs associated with it created a growing hunger for retailers to increase efficiency, establish strategic partnerships, and investigate alternative revenue streams to remain relevant and competitive.

As retailers strive to improve operations with limited resources, technology and automation have emerged as promising solutions. Generative artificial intelligence, in particular, has moved beyond initial hype and is generating measurable benefits. According to Deloitte, retailers that integrated AI-powered chatbots during Black Friday experienced a 15% improvement in conversion rates. The report also mentioned that six in ten retail buyers reported that AI-enhanced tools improved demand forecasting and inventory management in 2024. Digital efficiency has become a priority, and 2025 could mark a turning point for advancements in several fields, including merchandising, supply chain management, and marketing. Notably, seven in ten retail executives expect to implement AI capabilities within the year to enhance personalization efforts.

Consumer spending in February grew at a slower pace than expected. However, underlying data suggested that sales were strong despite concerns about economic slowdown and high inflation. The report was released during high uncertainty over economic growth, especially as President Donald Trump’s policies led to surging tariff disputes with important US trading partners. Economists have shown their concerns that these tariffs could contribute to higher inflation and weaken economic momentum. Retail sales for February rose by 0.2%, rebounding from the previous month’s downwardly revised 1.2% decline but missing the Dow Jones estimate of a 0.6% increase, as per preliminary data from the Commerce Department. The data also highlighted that retail sales climbed 0.3%, excluding auto sales, which aligned with market expectations.

According to the report, online spending played a key role in driving sales growth for the month, as nonstore retailers reported a 2.4% growth. In addition, health and personal care sales also experienced a 1.7% hike, while the food and beverage sectors saw a 0.4% growth. On the whole, retail sales grew 3.1% as compared to the same period last year, outperforming the 2.8% inflation rate measured by the consumer price index.

The retail sector has largely stabilized since the pandemic, making it an investment area worth considering. Investors are gravitating toward this sector, aiming to capitalize on growing consumer demand. Moreover, the sector is known for its history of providing dividend payments to shareholders. According to a report by Janus Henderson, the general retail sector distributed $8.4 billion in dividends in the third quarter of 2024, up significantly from $2.8 billion paid during the same period in 2020.

Our Methodology

For this article, we scanned Insider Monkey’s database of over 1,000 hedge funds as of Q4 2024 and picked companies that operate in the retail industry. These companies sell goods and services directly to consumers for personal use and operate through physical stores, online platforms, or a combination of both. From that list, we picked 11 stocks with the highest number of hedge fund investors and ranked them in ascending order of the hedge funds’ sentiment towards them.

At Insider Monkey, we are obsessed with hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

Dollar General Corporation (NYSE:DG)

Number of Hedge Fund Holders: 53

Dollar General Corporation (NYSE:DG) is an American chain of discount stores. The company faced some challenges in the past year, with the stock declining significantly by over 45% over the past 12 months. It faced headwinds from weaker consumer spending and inflation. In addition, competition from its competitors took a toll on the stock. However, analysts are presenting a positive outlook on the company as it continues to expand rapidly and has a solid turnaround plan. Moreover, the stock is currently cheap, trading at a forward P/E of 15.67.

To make up for its losses, Dollar General Corporation (NYSE:DG) announced the Back to Basics plan, which includes better inventory management and enhanced in-stock levels. The company is also experimenting with same-day delivery pilot and testing home delivery by using the DG app at 75 of its stores. Due to these strategies, the company’s recent quarterly earnings were encouraging. It reported a revenue of $10.3 billion in the fourth quarter of 2024, which showed a 4.5% growth from the same period last year. The revenue surpassed analysts’ estimates by $46.3 million. The company also reported a 1.2% growth in its same-store sales.

Dollar General Corporation (NYSE:DG) also posted a solid cash position, with its cash and cash equivalents growing to $932.5 million in 2024, from $537.2 million in 2023. The company also reported a 25.3% YoY growth in its operating cash flow at $3 billion. It currently offers a quarterly dividend of $0.59 per share and has a dividend yield of 2.74%, as of March 29.

Overall, DG ranks 8th on our list of the best retail dividend stocks to buy. While we acknowledge the potential of DG as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued dividend stock that is more promising than DG but that trades at 10 times its earnings and grows its earnings at double digit rates annually, check out our report about the dirt cheap dividend stock.

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Disclosure: None. This article is originally published at Insider Monkey.