Dividend Increase | Dollar General $DG #Dividend

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Dollar General for the dividend increase!

There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On March 17th the Board of Directors at Dollar General (DG) approved an increase in the quarterly dividend payment.  The dividend was increased from $0.42 to $0.55 which is an incredible 31.0% increase.  Dollar General is a Dividend Challenger with 8 consecutive years of dividend growth.  Shares currently yield 0.96% based on the new annualized payout.

The new dividend will be payable April 19th to shareholders of record as of April 5th.

Since I own 14.711 shares of Dollar General in my FI Portfolio, this raise increased my forward 12-month dividends by $7.65.  This is the 1st, of what I expect to be many, raise I've received from Dollar General since initiating a position in 2021.

A full screen version of this chart can be found here.

What Dollar General lacks in length of dividend growth, they've more than made up for with pace of dividend growth.  The quarterly payout has increased 250% compared to the same payment from 2015.

Dating back to 2015, Dollar General's year over year dividend growth has ranged from 6.2% to 47.0% with an average of 18.4% and a median of 12.0%.

There's been 5 rolling 3-year periods over that period with annualized dividend growth ranging from 8.8% to 19.6% with an average of 14.1% and a median of 12.8%.

Over the same timeframe there's been 3 rolling 5-year periods with Dollar General's annualized dividend growth ranging from 10.8% to 16.2% with an average of 14.0% and a median of 15.0%.

The 1-, 3-, 5-, and 10-year rolling dividend growth rates for Dollar General since 2015 can be found in the following chart.  

A full screen version of this chart can be found here.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 3-year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

Dollar General's 3-year average forward dividend yield is 0.81% which corresponds to a share price of $272 based on the new annualized payout.  

I consider the fair value range based on dividend yield theory to be the 3-year moving average yield +/- 10%.  That gives a fair value range of $247 - $301 and suggests that shares are trading below the lower end of the fair value range.

Another quick and dirty valuation method is the Gordon Growth or Dividend Discount model.  This valuation method is based solely off the expected future dividends as well as your required return.  Based on a 10% discount rate and assuming Dollar General can maintain 9.0% annual dividend growth shares are worth around $240 per share.

A full screen version of this chart can be found here.

At an 8.0% estimated dividend growth rate Dollar General's shares are worth around $120 per share.  

Wrap Up

This raise increased my forward dividends by $7.65 with zero effort on my part.  That's right, absolutely nothing to contribute to their operations.  Based on my FI Portfolio's current yield of 2.35% this raise is like I invested an extra $326 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way. 

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

This is the 19th dividend increase I've received from the companies in my FI Portfolio increasing by forward 12-month dividends by $164.93 combined.

My FI Portfolio's forward-12 month dividends are $9,846.92  Including my FolioFirst portfolio's forward dividends of $183.04 brings my total taxable accounts dividends to $10,029.96.  My Roth IRA's forward 12-month dividends are $936.97.  My Rollover IRA's forward dividends are $4,240.27.  Across all accounts I can expect to receive $15,207.20 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  Dollar General's can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of Dollar General?  

Please share your thoughts below.