Key Points

• Non-GAAP diluted earnings per share (EPS) of $0.24 beat analyst expectations by $0.22 in Q2 2025 and surpassed the $0.02 non-GAAP estimate.

• GAAP revenue of $1,110.5 million exceeded the consensus estimate in Q2 2025, but declined 4.1% year-over-year on a GAAP basis.

• Guidance for ongoing businesses (excluding Jack Wolfskin) improved for the full year, but same venue sales at Topgolf remained down 6% year over year.

• These 10 stocks could mint the next wave of millionaires ›

Topgolf Callaway Brands (NYSE:MODG), the sports and golf entertainment company behind Topgolf venues and Callaway golf equipment, reported results for Q2 2025 on August 6, 2025. The most important news: the company posted better-than-expected non-GAAP diluted EPS of $0.24, well above the $0.02 analyst estimate, and GAAP revenue was $1,110.5 million, beating forecasts. Despite this beat, GAAP revenue dropped 4.1% from the same quarter a year ago. The company’s performance benefited from cost discipline and margin efforts, while pressures from Topgolf’s same venue sales and the sale of its Jack Wolfskin business held back year-on-year comparisons. Overall, it was a quarter marked by outperformance versus expectations but continued challenges in underlying consumer demand, especially at Topgolf venues.

Metric	Q2 2025	Q2 2025 Estimate	Q2 2024	Y/Y Change
EPS – Diluted (Non-GAAP)	$0.24	$0.02	$0.42	(45.2%)
Revenue	$1,110.5 million	$1,093.5 million	$1,157.8 million	(4.1%)
Non-GAAP Net Income	$45.6 million		$83.1 million	(45.1%)
Adjusted EBITDA	$195.8 million		$205.6 million	(4.8%)
Revenue – Topgolf Segment	$485.3 million		$494.4 million	(1.8%)

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Business Overview and Key Success Factors

Topgolf Callaway Brands operates three main segments: Topgolf, which runs golf entertainment venues; Golf Equipment, which produces golf clubs and golf balls; and Active Lifestyle, which offers active and casual apparel and gear. The Topgolf segment is known for its interactive golf venues that blend food, drinks, and technology-driven social experiences. The Golf Equipment segment features brands like Callaway, a leader in golf clubs and balls, while the Active Lifestyle segment focuses on branded apparel and accessories, with TravisMathew now its main anchor after selling Jack Wolfskin.

Recently, the company has focused on a planned strategic separation, aiming to split Topgolf from its Golf Equipment and Active Lifestyle businesses. In September 2024, the Board announced its intention to pursue this separation, but a spin-off transaction is now likely to occur in 2026 after a new CEO is in place. Diverse revenue streams and a technology-driven customer experience have been important focus areas. Key factors for success include the ability to boost Topgolf venue traffic and margins, adapt to global tariff impacts, and execute cost-saving projects, all while maintaining a strong balance sheet post-divestiture.

Quarter in Review: Developments and Performance

GAAP revenue declined 4.1% year over year in Q2 2025, mainly due to lower sales in the Active Lifestyle segment and the divestiture of the Jack Wolfskin business. In the Topgolf segment, GAAP revenue decreased 1.8% year-over-year. This was driven by a 6% decline in same venue sales, which measures performance at locations open for more than a year. That said, this drop was somewhat better than the company's previous expectations, thanks to new value-focused promotions like "Sunday Funday" and late-night offers that helped support attendance. Management reported improved traffic from these value initiatives, although overall consumer spending per visit dipped as customers responded to lower pricing and fewer booking fees.

The Golf Equipment segment saw a slight year-on-year GAAP revenue decrease of 0.5%. Yet, segment operating income held up as cost reduction and gross margin gains offset the impact from new tariffs introduced in 2025, with Golf Equipment segment margins rising to 18.5%. Product feedback for new golf clubs remained strong, indicating healthy demand among avid golfers. The Active Lifestyle segment’s revenue fell 14.4% year over year on a GAAP basis, reflecting the sale of Jack Wolfskin and ongoing softness in remaining activewear lines. However, operating income in this segment jumped nearly 40% due to the removal of early-year losses from Jack Wolfskin, which has traditionally faced seasonal losses in the first half of the year, as evidenced by a loss of approximately €18 million of Adjusted EBITDA in the first half of 2025.

Despite lower revenue, the company delivered a small year-on-year increase in total segment operating income, up 2.7% to $152.2 million and reflecting improved focus on margin and efficiency projects. Operating margin rose. Company-wide liquidity improved significantly—mainly from the proceeds of the Jack Wolfskin sale and additional operating cash flow. GAAP net income dropped sharply to $20.3 million, down 67.3% from the previous year. This drop in GAAP net income was tied to one-time charges related to the Jack Wolfskin sale, higher currency hedge losses, and increased taxes. Non-GAAP net income and adjusted EBITDA also declined, but surpassed expectations, largely due to ongoing cost controls and stronger margins.

The period was also significant for strategic reasons. The process to separate Topgolf and the rest of the company took a new turn when Topgolf’s CEO announced his departure on July 31, 2025. Leadership said it is still committed to the split, but the timeline depends on naming a new CEO and setting up a stable, independent management structure. The company also completed the sale of Jack Wolfskin, which generated proceeds of approximately $290 million and bolstered liquidity to $1.16 billion. Management emphasized that diverse revenue streams and global reach remain priorities, though every region except the U.S. saw revenue declines (GAAP). The company cited work on technology upgrades like Toptracer ball tracking and new point-of-sale systems, which are designed to enhance customer experience at Topgolf venues.

Product Detail: Segment Highlights

Within Topgolf, the entertainment venue segment, new pricing and value programs produced higher visitor traffic, even as Same venue sales fell 6%. The company's "Sunday Funday" and late-night menu offers catered to families and young adults, successfully driving more walk-ins and group events. However, softness in large corporate events continued, with management stating that corporate bookings remain muted. Topgolf’s other business lines, which include technology licensing and international initiatives, saw a 16.4% drop in GAAP revenues.

In Golf Equipment, product launches centered on drivers and golf balls established Callaway’s clubs and balls as competitive, high-quality offerings. Although competitive launch schedules across the industry dampened the segment’s annual comparison, gross margin improvements and cost savings underpinned profits despite new tariffs. In the Active Lifestyle segment, the exit from Jack Wolfskin eased some top-line pressure but resulted in a smaller and less diversified business. This segment's operating margin increased as losses from the divested business no longer weighed on the results.

Looking Ahead: Guidance and Outlook

For the full year 2025, management updated guidance for continuing businesses for the full year after excluding results from the Jack Wolfskin sale. The company now expects consolidated net revenue (GAAP) of $3.80 to $3.92 billion for FY2025, an increase at the midpoint from previous expectations. Adjusted EBITDA, a measure of operating cash earnings before interest, taxes, depreciation, and amortization, Adjusted EBITDA is forecast at $430 million to $490 million for 2025, also up at the midpoint from prior guidance. Topgolf revenues are expected to reach $1.71 billion to $1.77 billion for the full year, with adjusted EBITDA (non-GAAP) for the segment predicted at $265 million to $295 million. Management improved its view on Topgolf's same venue sales, now predicting a decline of 6% to 9% for the full year instead of a deeper drop, reflecting recent traffic gains from value initiatives.

For the third quarter, Guidance points to lower consolidated net revenue and adjusted EBITDA compared to FY2024, mainly because the Jack Wolfskin business will no longer contribute and because of continued softness in same venue sales and incremental tariffs. Leadership did not announce a dividend for the period. MODG does not currently pay a dividend.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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JesterAI is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. All articles published by JesterAI are reviewed by our editorial team, and The Motley Fool takes ultimate responsibility for the content of this article. JesterAI cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool recommends Topgolf Callaway Brands. The Motley Fool has a disclosure policy.

Key Points

• Alphabet's AI strengths are being overlooked by the market.

• Amazon is using AI behind the scenes to become more efficient and drive growth.

• Meta Platforms and Pinterest are both using AI to drive advertising revenue growth.

• 10 stocks we like better than Alphabet ›

The artificial intelligence (AI) boom continues to drive growth and transform industries, but it's not just infrastructure players that are benefiting. Some of the best long-term opportunities are with companies deploying AI behind the scenes.

Let's look at five brilliant AI-related growth stocks to buy and hold for the long haul.

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1. Alphabet

Investors continue to underestimate Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), as they worry about AI disrupting its search business. But that view ignores what Google, its major component, actually does. This is a company built around content discovery -- not just traditional search -- and it's integrating AI into tools billions of people already use. And no other company is better at monetizing that content discovery through advertising than Alphabet. Its search data and digital ad network just cannot be matched.

The Chrome browser and Android operating system give it unmatched distribution; Chrome is the default search engine on the majority of devices, giving it a huge built-in advantage. And a recent Oppenheimer survey revealed that users found Google Search's new AI Mode more helpful than not only traditional search but also ChatGPT.

YouTube remains the world's largest ad-supported streaming platform. Google Cloud, Alphabet's cloud computing unit, is growing fast, helping companies build, train, and run AI models.

Google is also becoming a chip leader. Its Tensor Processing Units (TPUs) are helping to power AI development, while its Willow quantum computing chip may be a future growth driver. And Alphabet subsidiary Waymo is expanding its robotaxi footprint.

Taken altogether, Alphabet is one of the most innovative companies in the world, and one you want to own.

2. Amazon

Amazon (NASDAQ: AMZN) is using AI to become even more dominant. While it's best known for e-commerce and cloud computing, the company's behind-the-scenes work is where the real long-term value is being built.

On the logistics and warehouse side, Amazon is using AI to determine where to store inventory, create more efficient delivery routes, and even navigate hard-to-find drop-off points. Its robotics division just passed 1 million deployed units, and some of its AI-powered robots can detect damaged products or even repair themselves. Amazon also created a new AI model called DeepFleet that coordinates its entire robot fleet to help boost throughput.

The company's largest and fastest-growing business is Amazon Web Services (AWS). It helps customers build AI models and apps with tools like Bedrock and SageMaker, and then has them run those programs on its infrastructure. It's also developed custom AI chips that give it a cost advantage, and continues to invest in AI infrastructure to meet rising demand.

Overall, Amazon is well positioned for an increasingly AI-focused world.

3. Meta Platforms

Meta Platforms (NASDAQ: META) owns one of the world's most valuable digital advertising businesses, and AI is making it better. Its Llama models are driving more engagement across Facebook and Instagram, boosting user time spent on the apps. That gives Meta more ad inventory to sell. It's also using AI to help advertisers create better campaigns and target potential customers, which is increasing demand and leading to higher ad prices.

But Meta's growth story is just getting started. The company is only now beginning to serve ads on WhatsApp, which has over 3 billion users. It's also rolling out ads on Threads, its new social platform, which had 350 million users at the end of the first quarter. With two massive platforms still early in their monetization cycles and AI continuing to drive performance, Meta looks like a long-term winner in the AI-powered digital economy.

But the company is not stopping there. CEO Mark Zuckerberg is spending aggressively to poach top AI talent. This is all part of an effort to -- as Zuckerberg says -- "deliver personal superintelligence to everyone in the world." If it's successful, Meta could become the top AI stock to own.

4. Pinterest

Meta isn't the only social media company using AI to drive growth. Pinterest (NYSE: PINS) has been using AI to evolve into a more shoppable and advertiser-friendly platform. The company has built a multimodal model that understands both images and text, allowing for better personalization and powering new features like visual search. Users can now click on items within images and shop for similar products directly, making Pinterest far more transactional and more attractive to both users and advertisers.

It's also working to simplify advertising on its platform. Performance+, its new AI-powered ad product, automates everything from campaign creation to targeting and bidding. That makes the platform easier to use for advertisers and helps them save time and drive better outcomes.

Pinterest has a global user base that has historically been undermonetized, especially compared to those of its peers. But with AI improving engagement, search, and ad performance, the company has a big opportunity to start to close that gap. If it can continue executing on its vision of merging content discovery with commerce, Pinterest could be a breakout growth story over the long term.

5. Toast

Toast (NYSE: TOST) has become one of the leading software platforms for the restaurant industry. What started as simply a point-of-sale system is now a full-stack software platform that helps restaurants streamline operations and drive more sales. Its newest tools -- like the AI-powered intelligence engine ToastIQ and the agent and assistant Sous Chef -- are designed to help restaurants make better decisions in real time.

Meanwhile, the company said a restaurant piloting its new menu upsell tool saw average order volume increase by 6%, while another restaurant group testing its new AI-powered advertising tool saw more than a "10x return on ad spend" with Google Ads.

Toast directly benefits from its customers' success, earning a cut of sales through payment processing. That creates a strong alignment between the business and its customers, so the company continues to innovate to help drive restaurant sales. Toast added 6,000 new locations in Q1 and now serves more than 140,000 restaurants. It's also expanding into chains like Applebee's and Topgolf, as well as adjacent verticals like hotel food service and retailers. It's slowly expanding overseas as well.

Toast's pace of innovation and expanding customer base give it a long runway of growth. This makes it a growth stock you want to own for the long term.

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Geoffrey Seiler has positions in Alphabet, Pinterest, and Toast. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Pinterest, and Toast. The Motley Fool recommends Topgolf Callaway Brands. The Motley Fool has a disclosure policy.

Key Points

• Realty Income weathered some tough headwinds over the past five years.

• But it continued to raise its dividend as its AFFO increased.

• It might not consistently beat the market, but it’s still a great long-term buy.

Realty Income (NYSE: O), one of the world's largest real estate investment trusts (REITs), is often considered a dependable income investment. It sports a forward yield of 5.6%, it pays its dividends monthly, and it's raised its payout 131 times since its IPO in 1994.

As a REIT, Realty Income must distribute at least 90% of its pre-tax income to its investors as dividends to maintain a favorable tax rate. It leases its 15,621 properties to 1,565 different clients in over 89 industries in the U.S., U.K., and Europe, and its occupancy rate has never dipped below 96%. It's also a capital-light triple net lease REIT -- which means its tenants need to cover their own property taxes, insurance premiums, and maintenance fees.

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Over the past five years, Realty Income's stock price fell about 3%. Like many other REITs, it struggled in 2022 and 2023 as rising rates made it more expensive to purchase new properties, stirred up macro headwinds for its tenants, and drove some of its income investors toward risk-free CDs and T-bills. But if we include its reinvested dividends, it still delivered a total return of 25%. So will Realty Income's stock rally over the next five years as interest rates decline, or does it face other unpredictable challenges?

What happened to Realty Income over the past few years?

Realty Income merged with VEREIT in 2021 and Spirit Realty in 2024. Those mergers more than doubled its number of properties from 2020 to 2024, but it still maintained a high occupancy rate as it grew its adjusted funds from operations (AFFO) and dividends per share.

Metric	2020	2021	2022	2023	2024
Total year-end properties	6,592	10,423	12,237	13,458	15,621
Year-end occupancy rate	97.9%	98.5%	99%	98.6%	98.7%
AFFO per share	$3.39	$3.59	$3.92	$4.00	$4.19
Dividends per share	$2.71	$2.91	$2.97	$3.08	$3.17

Data source: Realty Income.

Some of Realty's top tenants -- including Walgreens, 7-Eleven, and Dollar Tree -- struggled with store closures over the past few years. However, stronger tenants like Dollar General, Walmart, and Home Depot consistently offset that pressure by opening new stores.

Realty Income still doesn't generate more than 3.4% of its annualized rent from a single tenant, and it locks its tenants into long-term leases with an average term of nearly 10 years. That diversification and stickiness insulates it from economic downturns.

What will happen to Realty Income over the next five years?

Over the next five years, Realty Income will likely expand in Europe to curb its dependence on the U.S. market. Unlike its leases in the U.S., most of its European leases are tethered to the consumer price index, which allows it to raise its rent to keep pace with inflation. It will likely ramp up its investments in data centers to profit from the secular growth of the cloud and AI markets, and scoop up more properties at favorable prices in sale-leaseback deals (in which businesses sell their own real estate and lease it back to cut costs). It could also expand into more experiential markets -- like gyms, resorts, and restaurants -- to further diversify its portfolio.

Realty still generates most of its rental income from the retail sector, but those tenants should face fewer headwinds as inflation subsides and interest rates decline. Lower interest rates should also make CDs and T-bills less attractive and drive more investors back toward REITs.

From 2019 to 2024, Realty Income grew its AFFO at a CAGR of nearly 5%. If it continues to grow its AFFO at a CAGR of 5% from 2024 to 2030 -- and still trades at 14 times its trailing AFFO -- its stock price could rise 33% to about $77 within the next five years. It should continue to raise its dividends and stay within its historical yield of 4%-6%.

So while Realty Income might not consistently beat the S&P 500 -- which has delivered an average annual return of 10% since its inception -- it should remain a stable investment for investors who need a reliable stream of monthly income. That's why I personally own shares of Realty Income, and why I think it's a solid long-term play.

Should you invest $1,000 in Realty Income right now?

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Leo Sun has positions in Realty Income. The Motley Fool has positions in and recommends Home Depot, Realty Income, and Walmart. The Motley Fool has a disclosure policy.

A recommendation downgrade from a veteran investment bank had a predictable effect on Dollar General (NYSE: DG) stock Tuesday. Investors put the company in the bargain bin by trading it down by more than 1% on the day. That didn't contrast well with the S&P 500's (SNPINDEX: ^GSPC) gain of over 1%.

The stock is not gold for Goldman

The institution behind the move was Goldman Sachs, whose analyst Kate McShane lowered her rating on Dollar General to neutral -- at a price target of $116 per share -- from her preceding buy.

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In her view, the budget retailer's recent share price appreciation has left it fairly priced, according to reports. At its current level, the company would have to substantially improve its fundamentals, and that isn't likely to happen, given the tough competitive environment in which it operates.

McShane also said Dollar General is limited by necessary investments into infrastructure and its supply chain.

That being said, she was complimentary about management's success in better positioning the company via the Back to Basics program. In her opinion, this has led to encouraging comparable-sales growth, and higher profit margins.

Heady gains

Dollar General's robust, year-to-date increase is striking -- even with the Tuesday slip, the stock has gained nearly 50%, against the S&P 500 index's less than 4% rise. Much of this is a play on a potential economic slowdown; particularly in the opening months of 2025, the market was worried about the detrimental effect of high tariffs on the economy. This is not such a concern anymore.

So I think the assessment that Dollar General doesn't have much (if any) upside is realistic. This isn't a stock I'd get very excited about just now.

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Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $676,023!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $883,692!*

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool has a disclosure policy.

Like a well-hit golf ball sailing through the air toward its destination, Topgolf Callaway Brands (NYSE: MODG) stock was vaulting higher in price this week.

According to data compiled by S&P Global Market Intelligence the sporting goods company's shares were up by nearly 23% in price week to date as of early Friday morning, thanks in no small part to a series of insider stock buys. The announcement of a new Topgolf facility also helped lift investor sentiment.

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Big insider buys

While no investor should ever buy or sell a company's shares purely on the basis of insider transactions, often they signal confidence by a person familiar with the business.

This was the dynamic with Adebayo Ogunlesi, a member of Topgolf Callaway's board of directors. After divulging last Friday in a regulatory filing that he had bought 383,701 shares of the company via open-market purchases last week, he made a subsequent disclosure detailing more buys. A filing submitted this past Tuesday itemized three additional purchases totaling 461,583 shares.

Such filings detail only the facts and figures of insider transactions, but do not provide any reasons for such moves -- and Ogunlesi has not publicly commented on his purchases. A veteran of the financial services industry, he might consider the stock a fine play in advance of the company's upcoming spinoff of more than 80% of the Topgolf business.

New Florida facility

Ogunlesi might also be simply buying into Topgolf Callaway's expansion. On Thursday it announced that it will open its newest Topgolf facility in Florida -- marking the 10th one in the state. However this will be the first Topgolf to be located on the Emerald Coast, a stretch of land in the state's panhandle fronting the Gulf. It's slated to open on Friday, June 27.

While the director's moves are certainly bringing attention to the stock, they shouldn't distract from the always-important fundamentals of the company. Personally I don't feel golf offers much of a growth opportunity, no matter how well conceived and appealing those Topgolf outlets may be.

Should you invest $1,000 in Topgolf Callaway Brands right now?

Before you buy stock in Topgolf Callaway Brands, consider this:

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Topgolf Callaway Brands. The Motley Fool has a disclosure policy.

Shares of retail chain Dollar General (NYSE: DG) dropped 45% in 2023 and 44% in 2024 as investors fretted over rising unemployment, macroeconomic uncertainty from tariffs, and the retailer's own plunging profit margins. In January, it hit rock bottom.

Dollar General stock is stunningly up more than 60% since. Investors today are left wondering whether it's still a value play today or whether the value train already left the station.

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As of this writing, Dollar General has earned nearly $1.2 billion in net profits over the last 12 months, and the total value of its stock -- its market cap -- is just north of $25 billion. This means that it trades at almost 22 times its profit. In other words, the price-to-earnings (P/E) ratio is 22.

On one hand, this means that Dollar General stock doesn't look like a value play today. After all, over the last decade, it's traded at an average P/E ratio of less than 20. From this perspective, it's trading at a more expensive valuation than normal.

DG PE Ratio data by YCharts

On the other hand, this chart doesn't tell the entire story. And the rest of the story has me believing that Dollar General is indeed an enticing value play for investors today. Here's why.

Why Dollar General stock is a value play

Generally speaking, stocks go up when earnings per share (EPS) increase. To be sure, one of the easiest ways to grow EPS is with revenue growth. But there are companies that still manage to grow EPS at a nice clip by other means, and this can lead to good stock performance.

This isn't a hard rule. After all, gaming platform Roblox is worth over $60 billion and has never reported positive EPS. But as a general rule, long-term EPS growth matters when it comes to a stock's price.

I'll be clear: I believe that Dollar General is in a great position to materially grow its EPS over the next five years at least. And I believe the stock is a value play today in light of its future profit potential.

Dollar General's profits are under pressure right now. But there are multiple reasons to believe that the pressure is temporary. Allow me to hit the big ones.

First, Dollar General's management misstepped and bought too much inventory back in 2022. This is clearly seen in the chart below -- inventory growth suddenly flew right past revenue growth.

DG Revenue (TTM) data by YCharts

The result of this miscalculation was devastating for Dollar General's profits. Besides merchandise getting damaged and stolen, management also had to lower prices to quickly downsize. And this hurt the company's profits. But now, with inventory returning to more appropriate levels, this headwind should abate, leading the way to better pricing and higher profit margins.

Second, Dollar General's customers have changed their shopping habits recently, which also impacts profits in the near term. About a year ago, management shared that most of its customers are low-income and anticipate missing credit card payments. This meant they were buying more food and less discretionary items.

The problem for Dollar General is that food items tend to have lower profit margins than discretionary items. While it's questionable whether macroeconomic conditions have yet improved since management shared this, it's reasonable to assume that they eventually will. A normalized mix of food items and discretionary purchases could help profit margins improve as well.

There are more reasons to believe that Dollar General's profits will improve over the next five years or more. For example, sales for the company's private label brands are steadily growing, which can have better margins. But suffice it to say that there are multiple drivers for Dollar General's profits in coming years.

1. The chart below shows that Dollar General's profit margin is about half of what its 10-year average is. I'm not necessarily hoping that the company does better than ever. On the contrary, simply returning to normal margins within the next few years would allow profits to double.

DG Profit Margin data by YCharts

Keep in mind that I'm only talking about Dollar General's higher profits due to normalized profit margins. This doesn't account for the incremental profit potential from opening new locations. Moreover, its same-store sales usually increase, leading to more revenue growth.

Dollar General stock is fairly priced today compared to profits that are under pressure. But it's a value play for those who assume that its stores remain relevant, its top line further grows, and its profit margins return to normal.

I personally assume all of those things. This is why Dollar General stock is a value play that I'm still happy to hold in my own stock portfolio today.

Should you invest $1,000 in Dollar General right now?

Before you buy stock in Dollar General, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Dollar General wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $669,517!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $868,615!*

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Jon Quast has positions in Dollar General. The Motley Fool has positions in and recommends Roblox. The Motley Fool has a disclosure policy.

At first sight, the two discount store chains appear similar enough. Sure, Dollar Tree's (NASDAQ: DLTR) distinguishing feature is a retail price point of $1.25 for at least most of its merchandise. It and Dollar General (NYSE: DG) are still both categorized as dollar stores, however, and certainly compete with one another for consumers' dollars.

These two companies are actually quite different from one another, though, so much so that their stocks aren't likely to move in tandem for the long haul. Here's what investors need to know.

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Not the same

Dollar General is still the titan of the business, operating 20,594 total stores peppered across most of the United States. Some of those are more experimental stores called pOpshelf, but by and large these locales operate under the Dollar General banner. This company did $40.6 billion worth of business last year, selling goods at a typical range of price points you'd expect from a discounter.

Dollar Tree's structure is different. It's actually the combination of 8,881 Dollar Tree stores and 7,622 Family Dollar stores, although the entirety of the latter chain is soon going to be sold to a private equity outfit. While this sale will essentially cut Dollar Tree's physical footprint in half, the remainder may be better off with this severing. The pairing never achieved the synergies investors were hoping it would when it was first formed back in 2015. The two separate units ended up operating quite independently of one another, with the Family Dollar arm simply devolving into dead weight that couldn't quite compete with more than a little head-to-head rivalry like Dollar General, but also outfits like Ollie's and Big Lots.

Still, the Dollar Tree brand itself enjoys enough scale -- $17.6 billion in sales last fiscal year -- and enough presence so that its eventual smaller size won't prevent it from effectively competing with Dollar General.

Nevertheless, there are differences investors will want to keep in mind.

Comparing and contrasting Dollar General and Dollar Tree

Giving credit where it's due, consumer market research outfit Numerator dug up most of the data on the table below, while the two companies themselves supplied the rest. Take a look, noting that Numerator's numbers for Dollar Tree only apply to Dollar Tree, and do not reflect Family Dollar's presence in the marketplace. (Dollar Tree's sales mix data at the bottom of the table, however, comes from these two companies themselves, and does include Family Dollar's portion of Dollar Tree's total sales.)

Metric	Dollar General	Dollar Tree
Locations
Rural	42%	30%
Suburb	38%	38%
Urban	19%	32%
Demographics
Lower income (<$40K)	27%	26%
Middle income ($40K-$125K)	49%	48%
Higher Income (>$125K)	24%	26%
Penetration/Reach
Average annual spend	$522	$290
Household penetration	60%	79%
Purchase frequency (annual)	20x	27x
Repeat rate	85%	80%
Sales mix
Consumables	82.7%	48.8%
Discretionary (seasonal, home, etc.)	17.3%	51.2%

Sales-mix data comes from each respective company. All other data provided by Numerator.

Much of this was already known, or at least broadly understood. Dollar General, for instance, has frequently touted the fact that roughly three-fourths of its stores are found in towns with populations of less than 20,000. According to Numerator, rural customers, despite shopping less often, contribute significantly due to higher spending per trip.

It's also arguable that Numerator's income breakdown understates just how many lower-income consumers depend on Dollar General. With above-average exposure to rural markets where incomes tend to be less than what they are in more urban settings, Dollar General's average customer lives in households with annual incomes believed to be right around the $40,000-per-year threshold Numerator is using at the low end of its middle range.

Perhaps the most eye-opening data point here, however, is how much consumables (food, cleaning supplies, etc.) Dollar General sells as opposed to Dollar Tree. More than 80% of Dollar General's sales are consumables, in fact, while a little less than half of Dollar Tree's are.

And remember, this sales-mix data includes Family Dollar's revenue, which presumably is more like Dollar General than not. Once Family Dollar's sales are taken out of the mix, look for Dollar Tree's sales mix to shift to an even greater proportion of discretionary goods.

Built to thrive in different environments

Great, but what does this mean for current and would-be investors of either stock?

It seems counterintuitive at first, but Dollar General's significant exposure to consumables is a problem when inflation lingers at relatively high levels, as it has since soared in 2021 and 2022. Not only does this pump up the retailer's costs on goods that already sport paper-thin margins, but in many cases struggling consumers simply stop making these purchases rather than shopping around for a cheaper alternative. As CEO Todd Vasos said last August following a disappointing Q2 report that preceded a cut to full-year guidance, "this lower-end consumer continues to be very much financially strapped, especially as it relates to her ability to feed her families and support her families." That message was reiterated in March this year.

The graphic below quantifies Vasos' qualitative assessment. Dollar General's same-store sales growth in 2022 is only the result of 2021's steep declines. This improvement withered in 2023, and has yet to be restored in earnest.

In contrast, Dollar Tree's discretionary business is arguably a competitive edge when inflation is chipping away at consumers' buying power.

This also initially seems counterintuitive. Think bigger-picture though. In a normal, decent economic environment, consumers might splurge modestly on décor, kitchenware, toys and the like with purchases at Walmart, Target, or Amazon. When forced to really pinch pennies though, these "splurges" increasingly happen at Dollar Tree at an affordable starting price point of $1.25.

In other words, Dollar Tree is the spending downgrade that Dollar General can't be.

The comparison below supports this argument. Not only have Dollar Tree's same-store sales consistently outgrown those of Dollar General since inflation was catapulted in 2021, Dollar Tree appears to have actually thrived when Dollar General couldn't specifically because of this lingering inflation.

These two stocks aren't exactly interchangeable

The opposite situation will, of course, lead to the opposite outcome. That is to say, if and when inflation finally cools and rekindled economic strength takes hold -- improving household incomes even in rural areas -- that plays to Dollar General's strengths.

That wouldn't necessarily put Dollar Tree at a troubling disadvantage though, to be clear. Dollar Tree's greater exposure to more urban shoppers and at least slightly bigger household incomes keeps its business relatively steady. There will also always be at least some demand for an affordable "treasure hunt" that only Dollar Tree can offer.

Still, an improving economy would set the stage for a shift in the competitive dynamic between these two dollar store chains, which could ultimately make a difference in their underlying stocks' performances.

And that may be what the market's betting on happening sooner rather than later, in light of Dollar General stock's recent market-beating run-up.

In the meantime, Dollar Tree shares are underperforming at least partly due to its Family Dollar drama. Even if it will be shedding this problematic arm soon, it's disruptive. Some investors may also be sensing a brewing shift toward economic health despite fallout from newly imposed tariffs that Dollar Tree is far more vulnerable to than Dollar General.

If you don't think the U.S. economy is actually out of the woods yet though (particularly as it pertains to consumers' buying power), beaten-down Dollar Tree shares are still arguably your better bet. Dollar General's more modest exposure to higher tariff costs still isn't enough to offset its disadvantageous mix of shopper demographics and its heavy reliance on lower-margin consumables.

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Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $614,911!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $714,958!*

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Target, and Walmart. The Motley Fool recommends Ollie's Bargain Outlet. The Motley Fool has a disclosure policy.

As of Monday's close, the S&P 500 was down by about 4% from where it started the year -- and that's after the markets bounced back considerably from their 2025 lows in recent weeks.

One stock, however, that has soundly outperformed the broad index this year is Dollar General (NYSE: DG). It's up more than 21%. The discount retailer has been a growth machine over the years, and opened its 20,000th location in 2024. Its significant presence across the country and its focus on low-cost goods have led many investors to see it as a promising opportunity of late.

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But what's been driving the share price rally? Is now really a good time to invest in Dollar General?

Why is Dollar General stock doing so well in 2025?

One big reason for Dollar General's impressive gains in the early part of 2025 is that investors see it as a fairly safe stock to hold amid the growing risks related to tariffs. According to analysts' estimates, just 4% of Dollar General's purchases are imported goods. Rival Dollar Tree has much more exposure to tariffs, and its stock has experienced a more modest increase of 12% this year.

Another condition supporting Dollar General's rise, however, could simply be that the stock was beaten down previously. Last year, Dollar General's stock lost 44% of its value, and the year before that, it fell by 45%. After such a sharp sell-off over two consecutive years, some bargain hunters may have been loading up on the stock as it was trading in the neighborhood of its seven-year low.

Even after its gains this year, it's still below $100 -- nowhere near the high of over $260 that it hit in 2022.

The company may not be out of the woods just yet

Before you decide to pile your own money into Dollar General's rally, consider that while its direct exposure to tariff risks may not be high, there are still other problems to worry about, too. First and foremost, its core customer base is struggling, and Dollar General management has mentioned this on multiple occasions. Most recently, in March, CEO Todd Vasos said that many of the chain's customers "only have enough money for basic essentials."

Now, consider that Dollar General's core customer is already feeling the pinch, and the U.S. economy has yet to come close to feeling the full effects of tariffs, which could include layoffs, rising unemployment, and a wide-scale reduction of spending across the board as consumers tighten their belts.

For its current fiscal year, which ends in January 2026, Dollar General has guided for same-store sales growth of between 1.2% and 2.2%. But I wouldn't be surprised by a downward adjustment to that if economic conditions worsen as the year progresses.

Investors should tread carefully

Despite Dollar General stock's encouraging start to 2025, I wouldn't hop on the bandwagon just yet. The business may struggle less than some of its peers, but it may still not perform all that well. If its core customer is already only buying essentials, and tougher times appear to be ahead, it's not hard to imagine a scenario in which Dollar General performs worse than expected and the stock gives back some of its early gains.

The stock trades at 18 times its trailing earnings, which is light in comparison to the S&P 500 average of 23, but there's good reason for that -- Dollar General's business has been sluggish in recent years and there hasn't been much of a reason to be optimistic. It should be trading at a discount.

While Dollar General may not be as vulnerable to tariffs as other companies, I don't see that as a good enough reason to buy shares. There are far better growth stocks out there to add to your portfolio.

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Before you buy stock in Dollar General, consider this:

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Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $623,103!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $717,471!*

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

If you're concerned about having enough income after you retire, there are lots of options. Buying rental properties is a popular one, but finding tenants and keeping up with maintenance often requires more effort than many retirees have in mind.

If dealing with contractors and tenants isn't your idea of a good time, I have great news. Real estate investment trusts, or REITs, are a terrific way for everyday investors to collect rent without owning any buildings themselves. REITs trade like stocks, but these specialized entities can legally avoid income taxes by distributing at least 90% of their profit to shareholders as dividends.

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Realty Income (NYSE: O) and W.P. Carey (NYSE: WPC) are well-established REITs that offer an average yield of 5.8% at recent prices. That means $17,300 spread between them is enough to produce $1,000 in annual dividend income. Here's why they're great options for folks who want passive income they can rely on to grow steadily throughout their retirement years.

1. Realty Income:

Realty Income is a net lease REIT that finished 2024 with 15,621 properties in its portfolio. The vast majority of annual rent it receives comes from retail properties resilient to e-commerce trends, such as convenience stores, dollar stores, and pharmacies. At recent prices, it offers a 5.7% dividend yield.

Realty Income's portfolio is well diversified. Its three largest tenants -- 7-Eleven, Dollar General, and Walgreens -- are responsible for just 10% of total rent.

Troubled businesses like Walgreens illustrate how net lease REITs like Realty Income can produce steady gains for patient investors. The troubled pharmacy chain suspended its dividend this year and will most likely be acquired by a private equity firm. Despite the turmoil, we haven't heard a peep from Realty Income about the pharmacy chain missing any lease payments.

Realty Income offers a monthly dividend payment that has risen steadily since the company's inception in 1969. In March, it raised its monthly dividend for the 130th quarter since becoming a publicly traded business in 1994.

The past decade hasn't been a historically great time to own commercial real estate. By rinsing and repeating its time-tested net lease operation, though, Realty Income has been able to increase its dividend at a 3.9% annual rate since 2015.

At recent prices, Realty Income offers a big 5.7% dividend yield, and steady growth at the usual pace shouldn't be too difficult. The REIT didn't enter the European net lease market until 2019, and this region is still brimming with opportunities. Realty Income and its peers account for less than 0.1% of the addressable market in that region.

2. W.P. Carey

While Realty Income's dividend has only moved in one direction, W.P. Carey lowered its quarterly payout in 2023 to compensate for the spinoff of its office portfolio as Net Lease Office Properties. Dividend reductions aren't something REIT investors want to see, and they punished the stock severely.

Adjusting its payout 19.7% lower to $0.86 per share in 2023 led to a dramatic stock market beatdown that the diversified net lease REIT hasn't completely recovered from. At recent prices, it offers a big 5.9% dividend yield.

After spinning off its office portfolio, W.P. Carey quickly returned to raising its payout every quarter. The payout investors received in April was 3.5% higher than the one they got a year earlier.

W.P. Carey's 1,555 property portfolio is arguably more diversified than Realty Income's. Its three largest tenants are a self-storage business called Extra Space Storage, a generic drug manufacturer called Apotex, and a business-to-business wholesaler in Italy named Metro. These top three tenants are responsible for just 7.1% of annualized rent.

Sometimes, net lease REITs buy or develop properties first and find tenants later. Mostly, though, they function as lenders through sale-leaseback transactions. By investing in properties that its tenants already use, W.P. Carey's occupancy rate hasn't dipped below 98% since 2011.

Being a big, well-established REIT gives a huge cost advantage to W.P. Carey. During the fourth quarter of 2024, it borrowed 600 million Euros at just 3.7% for 10 years. With access to inexpensive capital and a European market ripe for sale-leaseback financing, there's a good chance this REIT can keep raising its dividend payout throughout your retirement years.

Should you invest $1,000 in Realty Income right now?

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Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $594,046!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $680,390!*

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*Stock Advisor returns as of April 21, 2025

Cory Renauer has positions in W.P. Carey. The Motley Fool has positions in and recommends Realty Income. The Motley Fool recommends Extra Space Storage. The Motley Fool has a disclosure policy.

Dollar Tree (NASDAQ: DLTR) bought competitor Family Dollar in 2015. Now, it's selling the chain to a pair of private equity firms at a steep loss. Weirdly, the sale could result in competitor Dollar General (NYSE: DG), still a standalone business, being the big winner from the transaction.

Dollar Tree's expensive mistake

One of the ways that a company can destroy shareholder value is by acquiring other businesses that turn out to be worth considerably less than their purchase prices. Some Wall Street insiders cynically call this process "di-worse-ification." Sometimes, this questionable strategy is driven by a CEO who is hell-bent on building an empire, no matter the cost. Other times, companies are simply trying to find new avenues for growth, and their hopeful efforts just don't pan out as well as they expected.

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When Dollar Tree bought peer Family Dollar for roughly $9 billion in 2015, management's idea was that it could find a way to synergistically operate two discount chains with different approaches: Dollar Tree, with its core concept of selling everything in the store for $1 or less, and Family Dollar, with its approach of basically being a low-cost local convenience store.

But last month, Dollar Tree agreed to sell the Family Dollar retail concept to Brigade Capital Management and Macellum Capital Management for just a touch over $1 billion. That fire-sale price suggests that Dollar Tree made a material mistake with its purchase.

Notably, over the decade that Dollar Tree owned Family Dollar, the core Dollar Tree concept expanded to include a wider range of prices and an increasing array of products, like frozen foods. Though their business models are not quite the same, Dollar Tree did begin to look more like Family Dollar. Meanwhile, the Family Dollar brand ended up being a distraction that simply wasn't performing as well as management had hoped it would. It was probably the right idea for Dollar Tree to salvage as much money as it could by selling it.

Dollar General could end up with less competition

Family Dollar and Dollar General are fairly similar retail concepts: Both are attempting to fill the local convenience store niche, like an old five-and-dime, particularly in smaller towns that aren't directly served by big-box stores.

That said, the next steps for Family Dollar are probably going to be dramatic. Managers of public companies have to justify every decision to investors, who can be more focused on near-term impacts to the business and its stock price. Once it goes private, it's possible Family Dollar's new owners will be able to make quicker and larger moves to get the business back into fighting shape. That effort will likely include speeding up the pace of store closures.

Dollar General is also closing some locations to fine-tune its footprint. However, it is opening more stores than it is closing. In 2025, it expects to increase its store count by 2%. That's modest, for sure, but it's still growth. The net result of the Family Dollar sale, meanwhile, could be that Dollar General will face less competition in some markets as Family Dollar stores get shuttered. Those store closures could also open up expansion opportunities in markets that Dollar General previously hadn't served.

Dollar General could have a new tailwind

To be fair, Dollar General isn't exactly hitting it out of the park today. Revenue rose 4.5% in 2024, but earnings fell materially thanks to the company's own strategic review. The stock has fallen dramatically, as well. However, the company's repositioning effort could actually have just gotten a little easier to achieve thanks to Dollar Tree's sale of its competitor concept, Family Dollar.

If you have been looking at Dollar General with its historically elevated 2.5% dividend yield and thinking there's a value play here, you may now have even more reason to like the stock than you did before.

Should you invest $1,000 in Dollar General right now?

Before you buy stock in Dollar General, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Dollar General wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $495,226!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $679,900!*

Now, it’s worth noting Stock Advisor’s total average return is 796% — a market-crushing outperformance compared to 155% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of April 10, 2025

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Spring is only just starting to bloom, but 2025 is already starting to look like a lost year for investors. As of April 8, the S&P 500 (SNPINDEX: ^GSPC) is down 18%, the Nasdaq Composite is in a bear market, and investors are reeling over President Donald Trump's plan to impose the highest tariff rates in over a century.

Over the last week, all but five S&P 500 stocks are in the red, and of those, there's only one that isn't a healthcare company. It's a retailer with a business model that makes it recession-resilient. In fact, it has a history of outperforming and seeing stronger growth in recessions, and it's well positioned to avoid any headwinds related to tariffs.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

I'm talking about Dollar General (NYSE: DG), the discount retailer that suddenly looks like a winner after stumbling through 2023 and 2024. As you can see from the chart below, Dollar General has surged this year, easily beating the broad market:

DG data by YCharts.

Dollar General has gained as the S&P 500 has fallen, showing off its countercyclical nature. The stock surged the day after Trump announced global tariffs, gaining 4.7% even as the rest of the market tumbled, a sign that the market views Dollar General as tariff-proof.

Why Dollar General can beat tariffs

At the current moment of uncertainty in both trade policy and the overall health of the economy, Dollar General finds itself in an advantageous position, especially compared to other retailers.

First, consumables make up the vast majority of the company's sales -- 82% in 2024. These are products like paper and cleaning products, packaged food, perishables, and health and beauty products, all of which consumers buy in good times and in bad.

Because so much of its sales come from food, which is typically produced domestically, the company has much less tariff exposure than most retailers. According to Citigroup analysts, just around 10% of its inventory is exposed to tariffs, much better than Dollar Tree's 50%, as the latter company tends to sell more discretionary items.

Dollar General also has a history of outperforming in a recession, as consumers tend to trade down from more expensive stores when they're looking to save money. Additionally, the retailer has the advantage of selling smaller package sizes, so consumers can buy single rolls of toilet paper or paper towels, which they couldn't do at a competitor like Walmart.

In the throes of the great financial crisis, Dollar General reported same-store sales growth of 9% in 2008 and 9.5% in 2009, showing how consumers flock to its stores to save money. Over its history, the company has delivered positive same-store sales growth in every year since 1990, except for 2021 (a same-store sales spike of 16.3% when COVID-19 hit in 2020 gave way to a decline of 2.8% the following year). That track record shows it can do well in any economy.

Is Dollar General a buy?

As a business, Dollar General has been struggling over the last two years. It's lost market share to Walmart, and has seen margins fall sharply as inflation weighed on consumer spending in the low-income demographic.

The company announced a "Back to Basics" strategy, aiming to streamline its supply chain by closing temporary storage facilities and to improve store operations by reducing out-of-stock situations and making sure the point-of-sale area is adequately staffed. It's also investing in more store remodels even as it continues to open new stores.

Dollar General finished 2024 with same-store sales growth of 1.4%, showing that demand is still improving, despite its margin challenges. Its 2025 guidance for same-store sales growth was a range of 1.2% to 2.2%. It also expects a modest rebound in earnings per share of $5.10 to $5.80 this year, compared to $5.11 in 2024.

The current economic environment could prove to be a tailwind for Dollar General, especially if concerns about a recession spread.

For investors, the stock remains well-priced at a price-to-earnings (P/E) ratio of 17. Additionally, it offers a current dividend yield of 2.6%.

With the uncertainty around the Trump tariffs likely to continue, Dollar General looks like a great stock to ride out the storm, and to beat the market if the economy continues to weaken.

Should you invest $1,000 in Dollar General right now?

Before you buy stock in Dollar General, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Dollar General wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $495,226!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $679,900!*

Now, it’s worth noting Stock Advisor’s total average return is 796% — a market-crushing outperformance compared to 155% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of April 10, 2025

Citigroup is an advertising partner of Motley Fool Money. Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walmart. The Motley Fool has a disclosure policy.