May. 15 at 5:32 PM
Dollar General
$DG is one of the largest discount retailers in the United States, with over 20,893 stores nationwide as of fiscal year-end 2025.
The business model is incredibly simple:
Sell everyday essentials, at low price points, in small-format stores, in places larger retailers won’t go.
Roughly 80% of Dollar General’s stores are located in towns with populations of 20,000 or less, with their core customer base being lower to middle-income households, particularly in rural and small-town America.
This is a customer base that competitors like Walmart, Target, and Amazon have historically struggled to reach efficiently.
Dollar stores have been one of the most quietly powerful growth stories in U.S. retail.
Over the past decade, the total number of dollar stores in the U.S. has roughly doubled from 20,000 to over 40,000, and 88% of Americans now report having shopped at one.
Dollar General has gone from 8,194 stores in 2007 to 20,959 as of 2025, which is around a 156% increase in store count.
DG’s free cash flow over the last decade doesn’t look like a smooth compounder.
In fact, it’s been a bit of a roller coaster:
~
$870M in 2015
~
$1.45B in 2019
~
$2.85B in 2020 (pandemic boost)
~
$430M in 2022 when working capital reversed, shrink hit, and capex ramped.
This is exactly why management held the dividend flat through 2022–2023.
FCF has now recovered to ~
$1.7B in FY24 and ~
$2.4B in FY25.
Despite the volatility in free cash flow in recent years, the long-term story combined with the macro environment we are operating in makes DG quite interesting.
Take a few things into consideration:
- Inflation just ramped up to its highest level in over 3 years
- Consumer budgets are becoming increasingly stretched
- Credit card delinquencies and consumer debt levels remain elevated
All of these macro factors are contributing to the widening of the ‘K-shaped’ economy.
And ironically enough, Dollar General is set to benefit from this.
Dollar General operates in one of the most resilient areas of retail, value-focused consumer spending.
And historically, periods of economic pressure have often strengthened the company’s positioning as consumers trade down and become more price conscious.
That’s part of why the market may be underestimating the business today.
At the same time, Dollar General still has a massive physical footprint advantage.
The company estimates that roughly 75% of the U.S. population lives within five miles of a Dollar General location, giving it one of the most accessible retail networks in the country.
And unlike many traditional retailers, Dollar General’s smaller-box model allows stores to operate profitably in lower-density rural markets where competitors often cannot justify expansion.
The stock currently yields around 2.28%, which is 40% above its historical average yield, while the payout ratio remains conservative compared to many mature retailers.
But perhaps what is most interesting, is if we look at their free cash flow from a valuation standpoint.
The 10 year average free cash flow yield sits at 4.52%, meaning every
$100 you invest into the stock would generate around
$4.52 in free cash flow in year one.
However, their current free cash flow yield now sits way above their 10 year average, at 13.49%!
With earnings and free cash flow projected to grow at mid to high single digits in the next couple of years, combined with the fact they have macro factors working in their favor, DG could be a hidden gem over the next few years.
And with Wall Street currently projecting over 44% upside from current levels, Dollar General may be one of the more interesting contrarian dividend growth opportunities in today’s market.
