It Went Up 1,000%. Is Alimentation Couche-Tard Inc. Still a Buy?

Alimentation Couche-Tard Inc. (TSX:ATD.B) just made another acquisition. Can it continue its amazing growth story?

Since 2003, after the acquisition of Circle K, Alimentation Couche-Tard Inc. (TSX:ATD.B) has made 49 acquisitions. Couche-Tard has done it again by acquiring Topaz, Ireland’s largest convenience and fuel retailer. With the success of integrating the previous 49 acquisitions, or over 5,400 stores, Couche-Tard has proven its ability to acquire and integrate.

Why you may be interested

Couche-Tard is a growth story that has translated into substantial returns. Simply put, in the last year, while the S&P TSX dropped 9%, Couche-Tard went up 55%.

Its performance from 2008 to now has been nothing short of amazing. It generated free cash flow growth at a compound annual growth rate (CAGR) of 50%. In the same period, its dividend increased by over 460%, or a CAGR of 28%.

But since its yield has remained low for most of that time, investors should expect most returns to come from capital appreciation. From 2008 to now shares have appreciated 1,000%!

Since management and the board of directors must hold Couche-Tard shares, their interests are aligned with shareholders’ interests.

The business

Couche-Tard is a rare Canadian consumer staple. It is also the leading convenience store operator in North America, Scandinavia, and the Baltics. Couche-Tard operates under strong brands such as Couche-Tard, Circle K, Mac’s, Ingo, Statoil, and Kangaroo Express.

Couche-Tard has 7,987 stores in North America and 2,229 stores in eight European countries (before the Topaz acquisition). Couche-Tard’s international presence includes 4,697 licensed stores in Asia, Mexico, Honduras, and United Arab Emirates.

Couche-Tard has an investment grade S&P credit rating of BBB, and it is committed to remain investment grade even amid its plans to further consolidate the fragmented convenience store industry.

The Topaz acquisition

The transaction is expected to complete in the fourth quarter of fiscal year 2016. Topaz is the leading convenience and fuel retailer in Ireland. Topaz consists of 464 stations, including its recently acquired Esso station network. Of these stations, 162 are owned by Topaz and 302 are owned by dealers.

Is it a buy today?

There are still consolidation opportunities out there, so Couche-Tard’s future looks bright. However, with a multiple of over 24, Couche-Tard is fully valued.

Further, if its growth slows for any reason such as integration problems, even if these problems are temporary, the shares might trade sideways or even pull back. So, prudent Foolish investors shouldn’t buy all at once, but average in over time, especially on meaningful dips.

Still, with a payout ratio of only about 5% (while it has ranged between 2.2% and 13.7% in the past decade), there’s ample room for Couche-Tard to grow its dividend.

In conclusion

Couche-Tard has risen 1,000% from 2008, and it looks like it has more growth coming. However, it is fully valued today and would be a better buy on dips. Still, Foolish investors looking for a company that performs consistently in a good or bad economy can opt to buy some shares today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng has no position in any stocks mentioned.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »