Family Dollar (FDO)
From Cabot Wealth Advisory 1/24/13 Sign up for free Cabot Wealth Advisory e-newsletter
I scanned the list of 54 Dividend Aristocrat stocks to find undervalued companies with better-than-average dividend growth prospects for the future. Family Dollar Stores (FDO) is a blue chip company that currently sells at an attractive price.
Family Dollar Stores operates a chain of more than 7,000 retail discount stores in 44 states. FDO seeks low- to middle-income consumers and sells a selection of competitively priced merchandise. Items include consumables, home products, apparel and accessories, seasonal goods and electronics. Prices generally range from under $1.00 to $10.00.
Family Dollar is aggressively opening new stores and renovating old stores. Sales increased a better-than-expected 13% during quarter ended 11/30/12, and same-store sales advanced an impressive 6.6%. However, EPS inched ahead just 1% as higher marketing costs and abundant price mark-downs caused the weak earnings results.
Sales will likely rise 11% and EPS will climb 15% to 4.25 during the next 12-month period ending 2/28/14. New store openings could produce even better results. At 13.7 times my forecast, FDO shares are undervalued. Family Dollar has increased its dividend every year for the past 25 years and just last week raised the dividend by a whopping 24%. The dividend yield is now 1.8%. The dividend coverage ratio for FDO is only 28%, which is well below my maximum level of 50%. Buy FDO now.
Editor's Note: You can find additional dividend-paying, high-performing stocks selling at bargain prices in the Cabot Benjamin Graham Value Letter. In every issue, you'll find my legendary Maximum Buy and Minimum Sell Prices for over 250 stocks. For more information, click here.
|Family Dollar Stores (FDO)
10401 Monroe Road
Matthews, North Carolina 28105