The news is that Family Dollar is hiking its dividend to $0.21 from $0.18 per share per quarter.  The gain is a 16% hike and this has Family Dollar shares higher by 2.8% at $55.25.  This will take the 1.3% yield indication on the financial screens up to a better yield of about 1.5% for dividend investors.

It may not seem like a high yield, but the company has now claimed to have raised its dividend each year at a compound average rate of approximately 16%.

Dollar stores of today are really stores that sell items under $10.00 in most cases.  Family Dollar pays a dividend, while Dollar Tree and Dollar General Corporation (NYSE: DG) do not.

JON C. OGG

The unofficial closing bells put the DJIA up about 21 points to 12,418.57 (0.17%), the NASDAQ fell less than 1 point (-0.01%) to 2,648.36, and the S&P 500 rose 0.02% or less than 1 point to 1,277.31.

There were several analyst upgrades and downgrades today, including EMC Corp. (NYSE: EMC) added to ‘US Focus List’ at Credit Suisse; General Dynamics Corp. (NYSE: GD) raised to ‘overweight’ at JPMorgan; Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) reiterated ‘buy’ with $94 target price at Canaccord Genuity; Potash Corp. of Saskatchewan Inc. (NYSE: POT) started as ‘underperform’ at National Bank; and Tivo Inc. (NASDAQ: TIVO) raised to ‘overweight’ at Evercore Partners.

Earnings reports of note since markets closed yesterday include: Unifirst Corp. (NYSE: UNF) is up more than 3% at $59.83; and Progress Software Corp. (NASDAQ: PRGS) is down more than -11% at $17.55. Tomorrow sees earnings from Constellation Brands Inc. (NYSE: STZ), Monsanto Co. (NYSE: MON), and Family Dollar Stores Inc. (NYSE: FDO) among others.

Other standouts from today include the following stocks:

LCA-Vision Inc. (NASDAQ: LCAV) is up more than 40% at $4.33. The laser vision correction system provider said that it performed more than 14,000 procedures in the fourth quarter, up 30% year-over-year.

Rare Element Resources Ltd. (AMEX: REE) is up more than 27% at $4.53. The rare earths miner announced that its resource at the company’s Bear Lodge project is 38% higher than previously believed.

Netflix Inc. (NASDAQ: NFLX) is up nearly 11% at $80.02. The video distributor reported that it streamed more than 2 billion hours of video in the fourth quarter. More details on this story are available here.

Acme Packet Inc. (NASDAQ: APKT) is down more than -19% at $25.65, after posting a new 52-week low of $25.20 early this morning. The networking company warned on earnings last night. We have more coverage here.

Life Partners Holdings Inc. (NASDAQ: LPHI) is down more than -15% at $5.38. The life insurance company has been accused of accounting fraud by the US Securities and Exchange Commission.

Stay tuned for Thursday. Here are the noteworthy events on the schedule (all times Eastern):

• 7:30 a.m. – Challenger Gray & Christmas job-cut report
• 8:15 a.m. – ADP employment report
• 8:30 a.m. – Weekly initial unemployment benefits claims report
• 10:00 a.m. – ISM non-manufacturing index
• 10:30 a.m. – EIA weekly natural gas report
• 11:00 a.m. – EIA weekly petroleum status report
• 4:30 a.m. – Federal Reserve balance sheet and money supply reports

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Paul Ausick

BANK STAKE GAINS: Bank of America Corporation (NYSE: BAC) was listed as a larger position at 64.3+ million shares, higher by almost 4 million shares.  Keep in mind that there are also positions in warrants due 2018 and 2019 in the position at BofA.  Capital One Financial Corporation (NYSE: COF) was raised slightly to 22,200,000 shares worth $879.7 million, but the old stake of 21,100,000 shares worth $1.09 billion. 

BANK STAKES LOWERED OR ELIMINATED (partial): Citigroup Inc. (NYSE: C) was a much lower stake at 25.1 million shares worth $643 million versus a stake of 33.5 million shares worth some $1.395 billion a quarter earlier.  J. P. Morgan Chase & Co. (NYSE: JPM) was not even listed as a position, yet it was about 4.7 million shares at the June 30 report ( but there is still a warrant position).  Wells Fargo & Co. (NYSE: WFC) is a lower position of 23,847,900 shares worth $575 million versus the prior position of 33,600,000 shares worth $942 million. XL Group plc (NYSE: XL) was lowered as well to 23.675 million shares worth $445 million versus his previous larger position of 28.23 million shares worth $620 million. NYSE Euronext, Inc. (NYSE: NYX) was dropped from the positions entirely after being listed as 3 million shares a quarter before.

PAULSON’s OTHER LOWERED POSITIONS (partial): SPDR Gold Trust (NYSE: GLD) was cut by more than one-third down to 20,273,540 shares (now worth $3.2 billion) versus 31,500,000 shares worth nearly $4.6 billion previously. Teva Pharmaceutical Industries (NASDAQ: TEVA) was cut by more than half to 1,976,900 shares worth $73.5 million from 4.18 million shares worth $201 million.  The stakes in FAMILY DOLLAR STORES INC. (NYSE: FDO) and the stake in MGM RESORTS INTERNATIONAL (NYSE: MGM) were also lowered by Paulson.  Hewlett-Packard Co. (NYSE: HPQ) was lowered to 15.2 million shares worth $340 million from 23.5 million shares worth $855 million a quarter earlier.

PAULSON’s NEW POSTIONS:  AMC Networks Inc. (NASDAQ: AMCX) is a new position of 5,000,000 shares worth $159 million, making Paulson a zombie fan for The Walking Dead.  Cephalon Inc. (NASDAQ: CEPH) is a new position of 3,684,000 shares worth some $297 million.  Covidien PLC (NYSE: COV) is a new position of 2,000,000 shares with some $88.2 million.  CVS Caremark Corporation (NYSE: CVS) was another new position of 2,500,000 shares worth almost $84 million.

Mylan, Inc. (NASDAQ: MYL) was a higher stake of 24,896,500 shares worth $423 million versus 14,940,000 shares worth $368 million previously.

Fortunately for Mr. Paulson, the markets have recovered handily since the end of September and the start of October.

JON C. OGG

AT&T Inc. (NYSE: T) Cut to Market Perform at Bernstein.
The Bank of New York-Mellon (NYSE: BK) maintained Underperform as Bear of the Day at Zacks.
Brightpoint, Inc. (NASDAQ: CELL) Raised to Outperform as Bull of the Day at Zacks.
Family Dollar Stores, Inc. (NYSE: FDO) named Growth & Income stock of the day at Zacks.
Forest Laboratories Inc. (NYSE: FRX) Cut to Hold at Argus.
Healthways Inc. (NASDAQ: HWAY) downgraded at William Blair, Barclays, and Piper Jaffray.
JA Solar Holdings Co., Ltd. (NASDAQ: JASO) Raised to Overweight at Piper Jaffray.
Level 3 Communications Inc. (NASDAQ: LVLT) Raised to Neutral at Citigroup.
Lowe’s Companies Inc. (NYSE: LOW) Raised to Buy at Janney.
Netflix, Inc. (NASDAQ: NFLX) downgraded by Reed Hastings and everyone left who was still positive.
Royal Gold, Inc. (NASDAQ: RGLD) Raised to Overweight at HSBC.
Veeco Instruments Inc. (NASDAQ: VECO) Cut to Neutral at Sterne Agee; Reiterated Sell ar Canaccord Genuity.

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American Capital Agency (NASDAQ: AGNC) Cut to Market Perform at JMP Securities.
Apple Inc. (NASDAQ: AAPL) Reiterated Outperform with $500 target at Credit Suisse.
Archer Daniels Midland Company (NYSE: ADM) Started as Hold at Argus.
Cal-Maine Foods, Inc. (NASDAQ: CALM) named value stock of the day at Zacks.
Caterpillar Inc. (NYSE: CAT) Raised to Buy at Goldman Sachs.
Dollar Tree, Inc. (NASDAQ: DLTR) Cut to Equal-Weight at Barclays.
Family Dollar Stores, Inc. (NYSE: FDO) Raised to Overweight at Barclays.
Hewlett-Packard Co. (NYSE: HPQ) Reiterated Buy with $40 target at Argus.
Kirkland’s, Inc. (NASDAQ: KIRK) Cut to Underperform as bear of the day at Zacks.
Lincoln National Corporation (NYSE: LNC) Added to the U.S. 1 List at BofA/ML.
Monsanto Company (NYSE: MON) Reiterated Outperform as Bull of the Day at Zacks.
Navistar International Corp. (NYSE: NAV) Cut to Sell at Goldman Sachs.
Tiffany & Co. (NYSE: TIF) Started as Buy at Stern Agee.
Veeco Instruments Inc. (NASDAQ: VECO) Cut to Sell at Canaccord Genuity.

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JON C. OGG

24/7 Wall St. has been calling for higher and higher prices in the dollar store sector and we have discussed consolidation in the other discount store and close-out stores.  Dollar stores will be a secular winner over the years ahead unless we get a sudden return to a booming economy.  We have even gone as far as to showing that dollar store chains are now where Wal-Mart Stores Inc. (NYSE: WMT) was back in the early 1990s.  Private equity and other savvy investors like Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) have been active in this space. 

Dollar General Corporation (NYSE: DG) remains a Stock to Own for the Next Decade, but we are growing to accept the math here: shares hit a new all-time high of $39.22 today and the consensus price target is only $39.94.  We have chatted this one up over and over since the stock was well into the $20 stock handles.  Kohlberg Kravis Roberts & Co. (NYSE: KKR) continues to sell stock that it still owns and we would just expect that the firm will continue to sell shares.  It is when those price drops occur that you get your chance to enter the stock on the cheap.  Please be advised, we expect that Warren Buffett will have added to this position.

There has also been buyout interest in Family Dollar Stores Inc. (NYSE: FDO), up only marginally at $54.05 versus a 52-week range of $41.31 to $56.92.  Dollar Tree, Inc. (NASDAQ: DLTR) has also been under private equity interest and its shares are up 2% at $80.92 and its stock hit a new high of $80.99 this morning.  Analysts have consensus price targets of $56.87 for Family Dollar and $77.67 for Dollar Tree.

Big Lots Inc. (NYSE: BIG) is a close-out store with many low-priced items but is no dollar store.  There was a while where it was also considered takeover bait but that failed to materialize.  At $34.33, the 52-week range is $27.82 to $44.44.  Tuesday Morning Corp. (NASDAQ: TUES) is another close-out store and it is often overlooked because it has a mere $158 million market capitalization rate.  At $3.71 after a 2.6% drop today, its 52-week range is $3.22 to $5.93.

99 Cents only is up 4.2% at $21.36 this morning. The news and the reaction may seem anti-climactic, but this brings an end to what was a long and arduous buyout process that has been going on since at least March of this year.

The growth of discounters and the growth of dollar stores says something awful about America.  If these trends continue, it simply means we have more and more of the population at the lower-end of the spectrum seeking deals wherever they can be found.  Still, business is business.  If Warren Buffett and private equity giants have so much interest in this sector, ask yourself if there is money to be made. Again: Dollar Stores Are The Next Wal-Mart!

The sad thing is that there is now a market premium in the sector.  Our favorite remains Dollar General, but it now trades at 15-times 2012 (actually January 2013) fiscal earnings estimates from Thomson Reuters.  Another premium is there for Dollar Tree with a forward 2012 ratio of 17.5-times expected earnings.  Family Dollar has a different fiscal year-end (august) but if we blend the estimates we get a stock trading at close to 14-times the same earnings estimate periods of the peers.   

We will start to grow a bit more cautious on the sector of dollar stores if the price appreciates too much more.  The fact that we and others are excited about the dollar store and close-out store sector does not bode for much growth and does not bode well for the middle class.  These stocks now trade at richer multiples than many normal retailers: Macy’s Inc. (NYSE: M) trades at 9-times expected 2012 (January 2013) earnings estimates and Target Corporation (NYSE: TGT) trades at 12-times the same period’s estimates.  Wal-Mart Stores Inc. (NYSE: WMT) trades closer to 11-times next year’s expected earnings and that is after the stock enjoyed a significant pop of late.

For a comparison, 99 Cents Only at $22.00 per share values the company at about 17.5-times what was the expected 2012 (March 2013) fiscal earnings expectations.  This still leaves some room higher for dollar stores, but this is a premium to peers and to the broad market.  The secular trend is what is driving the value of dollar stores and investors are willing to pay a premium for that.  The questions will start to arise if these premiums grow much further.  How much of a premium can a discount sector command?

JON C. OGG

Wal-Mart Stores Inc. (NYSE: WMT) announced last month that it was re-instituting its layaway plan after a five-year break. Sears Holdings Corp. (NASDAQ: SHLD) Sears and Kmart stores, Target Corp. (NYSE: TGT), Best Buy Co. Inc. (NYSE: BBY), and The TJX Companies, Inc. (NYSE: TJX) TJ Maxx stores also offer layaway plans.

For many large retailers inventories have piled up and margins are threatened because retailers fear that they will have to take larger-than-planned markdowns to move their holiday inventory. Layaway plans at Kmart and Toys ‘R’ Us have helped boost sales through layaway programs, while Target has had success with a branded credit card that offers shoppers a 5% discount on items purchased at the store. Lowe’s Companies, Inc. (NYSE: LOW) has a similar discount credit card at its Lowe’s home improvement stores.

Some super-discounters like Dollar General Corp. (NYSE: DG) and Dollar Tree, Inc. (NASDAQ: DLTR) don’t offer layaway plans, but Family Dollar Stores, Inc. (NYSE: FDO) does.

There are even on-line layaway shops that offer everything from diamonds to fabrics. Payments are made by debiting customers’ bank accounts or by check.

Continuing high unemployment and stagnant wages are probably the biggest reason for the re-appearance of layaway plans. Credit tightening has left many consumers without access to credit cards or they prefer to conserve cash by avoiding high credit card interest rates. Many layaway plans include a small one-time fee for the service, but that’s always lower than 10%+ credit card interest rates.

The re-emergence of layaway plans reflects the desire for retailers to make it as easy as possible for every consumer to make a purchase and the desire among consumers to manage their own cash flows. The programs will last as long as consumer credit is expensive and hard to get, then they’ll fade away until the next time.

Paul Ausick

Amazon, Inc. (NASDAQ: AMZN) is up 0.9% premarket to  $226.22, relative to a 52-week range of $151.40 – $244.00.

Avago Technologies Ltd. (NASDAQ: AVGO) is down 3.6% premarket to $33.25, relative to a 52-week range of $21.54 – $39.45.

Chesapeake Energy Corporation (NYSE: CHK) is up4.4% premarket to $29.00, relative to a 52-week range of $20.97 – $35.95.

Comtech Telecomm. Corp. (NASDAQ: CMTL) is up 2.4% premarket to  $28.55, relative to a 52-week range of $23.51 – $32.00.

Family Dollar Stores (NYSE: FDO) are down 1.3% to $53.50, relative to a 52-week range of $41.31 – $56.92.

Jabil Circuit, Inc. (NYSE: JBL) is up 9.3% premarket to $18.99, relative to a 52-week range of $13.17 – $23.09.

Dollar stores are yet again in the news on reports from the New York Post that 99 Cents Only Stores (NYSE: NDN) is soon to get a $22.00 to $24.00 buyout offer from the private equity outfit Apollo Global Management, LLC (NYSE: APO) to top a prior buyout offer from Leonard Green & Partners at about $19.09 earlier in the year.  This may be the rumor mill at work, but there are reasons that this is the case.  The trick here is that the founding family controls about one-third of 99 Cents Only and our understanding is that a new deal might be complicated but would still probably boil down to the highest price within reason.

Dollar General Corporation (NYSE: DG) is a Stock to Own for the Next Decade!  It just saw a secondary offering where Kohlberg Kravis Roberts & Co. (NYSE: KKR) and private equity affiliates sold stock.  This has risen significantly since its re-IPO and each pullback has only proven to be a bargain-bin buying opportunity.  To prove a point, the stock hit a 52-week and all-time high of $38.33 on Friday and Warren Buffett’s new portfolio manager bought shares for Berkshire Hathaway Inc. (NYSE: BRK-A).

There has also been buyout interest in Family Dollar Stores Inc. (NYSE: FDO) and Dollar Tree, Inc. (NASDAQ: DLTR).  Family Dollar shares are up 4.5% at $54.38 and Dollar Tree is up only 0.3% at $75.46.

Big Lots Inc. (NYSE: BIG) is no dollar store, but it is very close and it has much of the same customer base.  It has also been under some perceived buyout interest as well.  Its shares are up almost 3% at $34.22 today against a 52-week range of $27.82 to $44.44.

Another close-out store is Tuesday Morning Corp. (NASDAQ: TUES) and it is often overlooked because it has a mere $172 million market capitalization rate.  At $4.03, its 52-week range is $3.38 to $5.93.

99 Cents only is trading up almost 10% at $20.50 today and it hit a new year high of $20.90 earlier.  Before 2005, this one was worth $30 and $35 at the peak and it pays no dividend.

Again, you do not have to like what the growth of discounters and the growth of dollar stores says about America.  Frankly, it is not very pleasant and it fits in with the theme of lower median income and higher poverty.  If Warren Buffett and private equity giants have so much interest in this sector, ask yourself if there is money to be made.

The TJX Companies, Inc. (NYSE TJX) may be too large now for private equity buyers to focus on with its $21.5 billion market valuation.  At $56.65, its stock is pennies away from the year high of $56.78 and that Barron’s $60+ target is looking much closer now.

Family Dollar is the only real dividend in the dollar sector with a 1.4% dividend yield.  TJX Companies is roughly the same dividend yield.  Wal-Mart offers the highest yield of most retailers, but again: Dollar Stores Are The Next Wal-Mart!

Here is the funny thing… Dollar stores are no longer cheap against the stock market.  They are expensive for the simplest of explanations: this is a secular trend and the growth rate looks to be continuous for this segment.

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JON C. OGG

There is a reason that there has been buyout interest in the sector as Family Dollar Stores Inc. (NYSE: FDO), Dollar Tree, Inc. (NASDAQ: DLTR), and 99 Cents Only Stores (NYSE: NDN) have all either been approached or have been believed to be possible private equity targets.  Ditto for the discounter that is no dollar store of Big Lots Inc. (NYSE: BIG).

Dollar General remains one of our Top Stocks To Own for the Next Decade despite its price rise.  We have said, each time the private equity backers sell it just gives you a free discount to buy shares.  Is it just a coincidence that Dollar General was recently added as a new Warren Buffett stock as Berkshire Hathaway Inc. (NYSE: BRK-B)?  Team Buffett has almost 1.5 million shares of common stock now.  Berkshire will likely buy more stock, and we would not be shocked at all if the conglomerate bought shares in this 25 million share offering.  Buffett and his portfolio managers understand the secular trends here that are working for the dollar stores.

Kohlberg Kravis Roberts & Co. (NYSE: KKR) still has control over Dollar General even after today’s offering.  This will not be the last secondary offering from them.  If you look at the history of these secondary stock offerings from KKR each dip has been simply another opportunity to get into Dollar General shares cheaper than before.

Citigroup, Goldman Sachs, and KKR, along with BofA Merrill Lynch and J.P. Morgan, were the joint book running managers; co-managers are Barclays Capital, Wells Fargo, Sanford C. Bernstein, CICC, Deutsche Bank, and HSBC.

As the float has grown larger and larger, each successive secondary offering is less and less dilutive to the float.  That is why shares are down only 1.3% at $34.54 today and why the share sale commanded only about a 1% discount.  The consensus price target from Thomson Reuters is $39.60, and the 52-week trading range is $26.65 to $37.13.

JON C. OGG