Wednesday, April 04, 2012

Family Dollar Stores (FDO) 2012 Review


Family Dollar Stores operates a chain of 6,785 general retail discount merchandise stores in 44 states. It provides competitively priced goods to low and middle income consumers, including home products, apparel and accessories, seasonal goods and electronics. 

FDO has grown profits and dividends at an 11% pace over the last 10 years earning a 15-20% return on equity. The company successfully navigated its way through the recent recession and should continue to improve earnings as a result of:

(1) its strategy to upgrade its merchandising, marketing and store operations,

(2) aggressive price management and cost containment programs,

(3) the company’s investment in initiatives to manage inventory risk and react promptly to changes in consumer tastes,

(4) a new point of sale system improves in-store customer experience,

(5) new store openings,

(6) a continuing stock buy back program.

Negatives:

(1) FDO serves a highly competitive merchandizing sector,

(2) expansion into geographic areas already served could cannibalize sales,

(3) its customer base is very sensitive to economic conditions.

FDO is rated A by Value Line, carries a 31% debt to equity ratio and its stock yields 1.5%.

Statistical Summary

Stock Yield Dividend Growth Rate Payout Ratio # Increases Since 2002
FDO 1.5% 13% 22% 10
IND 1.5 12 25 NA

Debt/Equity ROE EPS Down Since 2002 Net Margin Value Line Rating
FDO 31% 31% 1 5% A
IND 30 18 NA 3 NA

Chart

Note: FDO stock made great progress off its December 2007 low, surpassing the downtrend off its July 2007 high (red line) and the November 2008 trading high (green line). Long term the stock is in an uptrend; the straight blue line is the lower boundary. Intermediate term it is also in an uptrend (purple lines). The wiggly blue lines are Bollinger Bands. The Dividend Growth Portfolio owns no position in FDO. The upper boundary of its Buy Value Range is $30; the lower boundary of its Sell Half Range is $75.




http://finance.yahoo.com/q?s=FDO

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.