Wal-Mart Stores, Inc. (WMT), Family Dollar Stores, Inc. (FDO): This Retailer Is Growing Despite Challenges

Dollar Tree, Inc. (NASDAQ:DLTR) is small but it is packing a punch by shrewdly expanding stores and offering the maximum number of $1 items. So Family Dollar needs to be aware of this threat as Dollar Tree might eat its lunch with its own set of initiatives in the long run.

Family Dollar also needs to keep an eye on the moves of Wal-Mart, which has been focusing on $1 items of late and is also moving aggressively in neighborhood markets, its fastest-growing segment, according to Forbes.

Wal-Mart Stores, Inc. (NYSE:WMT) already has lower prices than dollar stores such as Dollar General Corp. (NYSE:DG). and if it moves into the neighborhoods, then the likes of Family Dollar will have a real problem. Wal-Mart would probably keep the needs of local residents in mind when opening stores in residential areas, use smaller stores and might even put up a rewards program to increase sales and hurt dollar stores in the process.

From an investment perspective as well, Wal-Mart Stores, Inc. (NYSE:WMT) would be a good choice. It is an ideal defensive stock that investors would want in their portfolio with a beta of just 0.3 and a decent dividend yield of 2.4%. The company’s diversification across geographies also insulates it against fluctuations in specific regions and a payout ratio of 33% indicates that the dividend can be increased in the future.

Closing thoughts

Despite having to compete with such giants, Family Dollar Stores, Inc. (NYSE:FDO) has been able to show fair growth under the circumstances. Family Dollar Stores is upbeat about the future, though the year has been more challenging than expected. It has re-positioned itself by focusing on what is under its control, such as having an aggressive stance on managing expenses, controlling and improving inventory etc. All this would enable it to compete and grow in the future.

ANUP SINGH has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. ANUP is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article This Retailer Is Growing Despite Challenges originally appeared on Fool.com and is written by ANUP SINGH.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.