Investing in Dollar General discount retail

Investing strategies now may shift to income instead of growth. Our financial advisor gave us the thought earlier in the year. While past strategies for people still 15 to 20 years away from retirement would have focused on growth, he offered the perspective that generating income is currently more important.

I never thought about the idea of investing in a discount retailer like Dollar General (NYSE: DG) until I started writing about back-to-school shopping. Dollar General has proven success in serving small towns and mid-size communities.

Dollar General opened its 9,000^th store on July 31 in Fountain Run, Kentucky. The company started in Springfield, Kentucky in 1955. The company’s business model is focused on low cost consumables. Dollar General stock was trading below $23 a share in November 2009 and currently trades around $ 29 a share in mid-August 2010. Those who are interested in investing should look in to the dividends paid and not just a growth opportunity.

A corporate press release states that the company helps shoppers save time and save money “by offering products that are frequently used and replenished such as food, snacks, health and beauty aids, cleaning supplies, basic apparel, house wares and seasonal items.” Dollar General’s website and the stores offer both name brands and private label products.

The company is building new stores as a means of expanding and gaining market share. There is an aggressive drive. The website outlines the corporate goals in terms of demographics and real estate. They aim at households earning less than $ 75,000 annually and the trade area can have a population as low as 4,500 people. Members of the public are invited to contact Dollar General trade representatives to discuss possible locations.

http://www.dollargeneral.com/OurStores/Pages/StoreGrowthRealEstate.aspx

The company’s code of ethics and corporate governance guidelines are included on its site for the public to read.

As I think about Dollar General’s aggressive expansion, it brings to mind Home Depot. I sold roofing for Home Depot for two years (2005 to 2007). The company was committed to growth through opening new stores. Their store presence in the Los Angeles area was much greater than Lowes but as they expanded in physical space and in their At-Home Services area, credit began to tighten and they cut back on the number of employees working in the stores.

I heard many people complain about their in-store experience at Home Depot.

Dollar General, though, doesn’t seem like it will be affected by credit tightening since it’s the purchases are items people need and the costs are low enough to generate regular cash flow.

While Dollar General may not be a glamorous growth investment, ask your financial advisor if it looks like it could be a stable worthwhile investment for the short-term and long-term.