3 Reasons to Buy Canadian Tire Corporation Limited

What makes Canadian Tire Corporation Limited such a great candidate for your portfolio?

The Motley Fool

Shareholders of Canadian Tire Corporation Limited (TSX: CTC.A) have been on a nice run recently — since the beginning of 2013, the shares have gone up 50%. However, there are still a few reasons why the stock can increase further, and below we take a look at three in particular.

1. The right kind of growth

It’s time for a small history lesson. Back in the 1980s, Canadian Tire tried to enter the United States by buying a chain of Whites stores in Texas. It failed miserably. A smaller effort followed in the 1990s, which again flopped.

Because of this history, there is practically zero chance the company will enter the U.S. again. That is probably for the best. Instead, it can focus on growth within Canada, mainly from banners like Sport Chek. This has a much greater chance of success — Sport Chek in particular has proven to be very popular (and profitable), and much of Canada is underserved when it comes to sports retailing.

Compare this situation to that of Tim Hortons Inc (TSX:THI)(NYSE:THI). Tim Hortons has very few growth opportunities in Canada, and is instead expanding in the ferociously competitive U.S. market. Shareholders are still waiting to reap the rewards.

2. Immunity from competition

It’s time for another history lesson. Back in 1994, when Wal-Mart Stores, Inc entered Canada, Canadian Business called Canadian Tire a “deer in the headlights”. However, it persevered admirably, so it should have surprised no one that Canadian Tire was also able to stand up to Target Corporation last year.

So what’s Canadian Tire’s secret? Mainly it’s the company’s footprint, which comes from it being 90 years old. Put another way, Canadian Tire was able to lock up the best real estate locations across the country before the Americans entered. When the American giants did come to town, Canadians had to drive further to get to their stores.

This same dynamic has helped Canadian companies like Loblaw Companies Limited (TSX: L) maintain their leadership position in grocery retail. After all, many people simply aren’t willing to drive all the way to the nearest Costco to buy food.

3. A growing dividend

Canadian Tire’s dividend is not something to write home about; as it stands, the shares yield a mediocre 1.9%. However, that is because it devotes so little of its income to dividends — despite making $6.91 per share last year, the dividend still only stands at $0.50 per quarter. Clearly, Canadian Tire would rather spend its dollars on its expansion efforts.

That is steadily changing, though. The dividend has been increased twice in the last 12 months alone. The company can only spend so much money on expansion if it stays in Canada; eventually that dividend will have to be raised drastically. When it is, that could mean a big pop in the share price too.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned. The Motley Fool owns shares of Costco Wholesale.

More on Investing

happy woman throws cash
Dividend Stocks

The Ideal TFSA Stock: A 5.9% Yield-Paying Constant Cash

Enbridge’s predictable cash flows, substantial growth pipeline, and long history of dividend increases underpin its long-term investment appeal for TFSA…

Read more »

woman gazes forward out window to future
Dividend Stocks

Dividend Income in Retirement: What Could Go Wrong?

Dividend investing is a proven way to create income in retirement but you must know the risks you need to…

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

A 5% Monthly Payer I’d Buy for My TFSA: About $100 a Month on $24,000

Canada’s largest residential landlord offers a high yield, reliable monthly income, and a tax-sheltered foundation for TFSA investors.

Read more »

Energy Stocks

Why Canadians Love Dividend Stocks (and What Beginners Should Know)

Canadian stocks like Enbridge are prime examples of the many benefits of dividend stocks, such as reliability and income.

Read more »

Two seniors walk in the forest
Dividend Stocks

Can Dividends Replace a Paycheque in Retirement?

Can dividends in retirement replace your paycheque? Explore how Scotiabank, RioCan REIT, and Fortis can help build a steady retirement…

Read more »

Sliced pumpkin pie
Dividend Stocks

The Fees That Quietly Eat Into a Small Investment

Many funds charge outrageous fees, but broad market index funds like the iShares S&P/TSX Capped Composite Index ETF (TSX:XIC) usually…

Read more »

Warning sign with the text "Trade war" in front of container ship
Stocks for Beginners

Trade Wars Are Reshaping Canada’s Export Map: This Railway Stock Could Benefit

CPKC could benefit as Canadian exporters seek new trade routes, but new destinations need to produce profitable freight.

Read more »

dividends grow over time
Dividend Stocks

The U.S. Dollar is Rising Again: Here’s What VFV Investors Should Know

VFV investors receive both U.S. equity returns and currency translation.

Read more »