Alimentation Couche-Tard Inc.: Dividend Hikes? Yes Please!

In the wake of uncertainty in the Canadian retail market, here’s why I believe investors interested in buying into some of the recent weakness on retail should consider Alimentation Couche-Tard Inc. (TSX:ATD.B).

| More on:
grocery store

Canadian investors looking to play recent weakness in retail stemming from the announced acquisition of Whole Foods Market (NASDAQ:WFM) by Amazon.com, Inc. (NASDAQ:AMZN) have been left with few decent options on the TSX.

Traditional large names like Loblaw Companies Ltd. (TSX:L) and Metro, Inc. (TSX:MRU) have sold off by approximately 15% since early May, a slide which started a month before the acquisition announcement, but one which has only picked up steam since then. Shares of Alimentation Couche-Tard Inc. (TSX:ATD.B) have dipped about half as much as Loblaw and Metro over the same time frame, and have generally traded sideways over the past two years as the company has continued to produce decent, albeit perhaps underwhelming results.

Recent earnings miss adding to investor uncertainty

This most recent quarter was a difficult one to assess for Couche-Tard, given the fact that the company simultaneously missed earnings expectations (driven by lower fuel margins and higher expenses overall), but blew dividend expectations out of the water with a 20% dividend increase. This increase has placated some investors who have been calling for such an increase for some time (the company’s current yield sits at a measly 0.6% following the hike), however in the opinion of many investors, more needs to be done more quickly on this front.

While the company’s management team has increased the dividend distributions to shareholders substantially, Couche-Tard’s management team has also indicated it is willing to engage in additional acquisitions to boost growth. This most recent quarter, the majority of the company’s growth originated outside of Canada, with the U.S. and European markets providing a larger boost that its base of Canadian locations. Speculation as to where the company may continue to acquire retail business abounds, but analysts generally believe Europe will be the focal point for the company in coming quarters.

Bottom line

Investors should look at Couche-Tard, a company which has been beaten up post-earnings, but one which is far more likely to rebound from the recent turmoil, in my opinion, than other retailers more reliant no food staples experiencing low price inflation (or even deflation in some cases); while gas margins remain the large overhanging headwind for the firm, the company’s snacks and convenience category associated with Couche-Tard’s integrated business model is one which should be more impervious to cost pressures.

Couche-Tard is one of the few retail businesses I would recommend investors take a deep look at in today’s economic environment given the excess geographic diversification this company provides when compared to its competitors. Currently trading at valuation multiples which would place this firm near “value” territory, I believe this company has much more medium-term upside than rivals such as Loblaw or Metro today.

Stay Foolish, my friends.

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.

owns shares of Amazon and Whole Foods Market. owns shares of Whole Foods Market. The Motley Fool owns shares of Amazon and Whole Foods Market.

More on Dividend Stocks

Specialty Brands faces higher raw materials costs.
Dividend Stocks

What’s Next for Premium Brands Stock?

Shares of the specialty food production and distribution company have fallen about 25% since last October.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

2 Interesting Buys in Any Market

Here are two intriguing buys in any market climate that offer defensive appeal as well as growth and income earning…

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

TFSA Investors: 3 TSX Stocks for Tax-Free Passive Income

These Canadian corporations have strong visibility over future earnings and dividend payouts.

Read more »

Simple life style relaxation with Asian working business woman healthy lifestyle take it easy resting in comfort hotel or home living room having free time with peace of mind and self health balance
Dividend Stocks

Lazy Landlords: 3 Cheap Canadian REITs to Buy in May 2022

You can become a passive landlord today by investing in Canadian REITs. Here are three cheap REITs to consider this…

Read more »

Target. Stand out from the crowd
Dividend Stocks

4 High-Yield TSX Stocks to Buy Ahead of Their Ex-Dividend Dates

If you have some cash lying idle, consider these high-yielding TSX stocks.

Read more »

growing plant shoots on stacked coins
Dividend Stocks

Passive Income: 3 TSX Stocks With Rapidly Growing Dividends

Worried about inflation? Here are three passive-income stocks to buy that pay rapidly growing dividends.

Read more »

Family relationship with bond and care
Dividend Stocks

Retirees: 4 Safe Stocks to Buy for Decent Passive Income

Retirees can offset the impact of runaway inflation by buying safe dividend stocks to create more cash flows.

Read more »

Canadian energy stocks are rising with oil prices
Dividend Stocks

3 Canadian Energy Stocks to Buy for Reliable Passive Income

Canadian energy stocks are gushing cash. Here's three top stocks that are perfect buys for reliable passive income.

Read more »