Stock Analysis on Net

Dollar General Corp. (NYSE:DG)

This company has been moved to the archive! The financial data has not been updated since August 31, 2023.

Dividend Discount Model (DDM) 

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

Dollar General Corp., dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 8.18%
0 DPS01 2.20
1 DPS1 2.83 = 2.20 × (1 + 28.48%) 2.61
2 DPS2 3.48 = 2.83 × (1 + 22.98%) 2.97
3 DPS3 4.08 = 3.48 × (1 + 17.48%) 3.23
4 DPS4 4.57 = 4.08 × (1 + 11.98%) 3.34
5 DPS5 4.87 = 4.57 × (1 + 6.48%) 3.29
5 Terminal value (TV5) 306.57 = 4.87 × (1 + 6.48%) ÷ (8.18%6.48%) 206.96
Intrinsic value of Dollar General Corp. common stock (per share) $222.40
Current share price $138.50

Based on: 10-K (reporting date: 2023-02-03).

1 DPS0 = Sum of the last year dividends per share of Dollar General Corp. common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.81%
Expected rate of return on market portfolio2 E(RM) 13.55%
Systematic risk of Dollar General Corp. common stock βDG 0.38
 
Required rate of return on Dollar General Corp. common stock3 rDG 8.18%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rDG = RF + βDG [E(RM) – RF]
= 4.81% + 0.38 [13.55%4.81%]
= 8.18%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Dollar General Corp., PRAT model

Microsoft Excel
Average Feb 3, 2023 Jan 28, 2022 Jan 29, 2021 Jan 31, 2020 Feb 1, 2019 Feb 2, 2018
Selected Financial Data (US$ in thousands)
Dividends paid 493,732 392,217 355,934 327,578 306,562 282,941
Net income 2,415,989 2,399,232 2,655,050 1,712,555 1,589,472 1,538,960
Net sales 37,844,863 34,220,449 33,746,839 27,753,973 25,625,043 23,470,967
Total assets 29,083,367 26,327,371 25,862,624 22,825,084 13,204,038 12,516,911
Shareholders’ equity 5,541,772 6,261,986 6,661,238 6,702,500 6,417,393 6,125,774
Financial Ratios
Retention rate1 0.80 0.84 0.87 0.81 0.81 0.82
Profit margin2 6.38% 7.01% 7.87% 6.17% 6.20% 6.56%
Asset turnover3 1.30 1.30 1.30 1.22 1.94 1.88
Financial leverage4 5.25 4.20 3.88 3.41 2.06 2.04
Averages
Retention rate 0.82
Profit margin 6.70%
Asset turnover 1.49
Financial leverage 3.47
 
Dividend growth rate (g)5 28.48%

Based on: 10-K (reporting date: 2023-02-03), 10-K (reporting date: 2022-01-28), 10-K (reporting date: 2021-01-29), 10-K (reporting date: 2020-01-31), 10-K (reporting date: 2019-02-01), 10-K (reporting date: 2018-02-02).

2023 Calculations

1 Retention rate = (Net income – Dividends paid) ÷ Net income
= (2,415,989493,732) ÷ 2,415,989
= 0.80

2 Profit margin = 100 × Net income ÷ Net sales
= 100 × 2,415,989 ÷ 37,844,863
= 6.38%

3 Asset turnover = Net sales ÷ Total assets
= 37,844,863 ÷ 29,083,367
= 1.30

4 Financial leverage = Total assets ÷ Shareholders’ equity
= 29,083,367 ÷ 5,541,772
= 5.25

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.82 × 6.70% × 1.49 × 3.47
= 28.48%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($138.50 × 8.18%$2.20) ÷ ($138.50 + $2.20)
= 6.48%

where:
P0 = current price of share of Dollar General Corp. common stock
D0 = the last year dividends per share of Dollar General Corp. common stock
r = required rate of return on Dollar General Corp. common stock


Dividend growth rate (g) forecast

Dollar General Corp., H-model

Microsoft Excel
Year Value gt
1 g1 28.48%
2 g2 22.98%
3 g3 17.48%
4 g4 11.98%
5 and thereafter g5 6.48%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 28.48% + (6.48%28.48%) × (2 – 1) ÷ (5 – 1)
= 22.98%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 28.48% + (6.48%28.48%) × (3 – 1) ÷ (5 – 1)
= 17.48%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 28.48% + (6.48%28.48%) × (4 – 1) ÷ (5 – 1)
= 11.98%