This Thriving Retailer Just Hiked its Dividend by 38%

Canadian Tire Corporation Limited (TSX:CTC.A) is reporting that business is healthy and is returning capital to shareholders through dividend increases and share buybacks.

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These days, with interest rates remaining at very low levels, it is not only retirees that are looking for dividend-paying stocks to provide that all-important lift to income.

So, when I encountered a company that not only provides a healthy dividend, but also a growing dividend and business, I am all the more excited. If we can get income plus growth and capital appreciation, it is the best of both worlds.

Enter Canadian Tire Corporation Limited (TSX:CTC.A).

The company just reported very solid third-quarter results, and based on this and management’s outlook for the future, they have decided to increase the dividend by 38% to $3.60 per share.

With total same-store sales increasing 3.9%, earnings per share increasing 5.9%, and ambitious financial targets for the years to come, Canadian Tire’s transformation continues to impress.

Financial targets for the next three years include annual consolidated same-store sales growth of 3% (excluding petroleum), annual diluted EPS increases of 10%, and a return on invested capital on the retail business of 10% by the end of 2020.

Currently, the company’s return on invested capital is just under 9% compared to just over 8% a year ago. So, good progress on this front is already evident.

Transformation of a sleeping giant

Recall that the company used to be the sleepy retailer that was falling behind the times, with financial results reflecting this.

But a new CEO (Michael Medline) in 2014 began a new era at the retailer. And although the company now has another CEO at the helm, we continue to see strong sales growth, growing margins, and a growing relevance of the retailer as we head into the new age of retailing, with online presence being of utmost importance.

The company has always had a very strong brand awareness, but at times in the past, that brand was not associated with good things. A revamping of the brand was therefore embarked upon, with targeted marketing and a huge investment in all things digital.

Digital marketing was beefed up, and Canadian Tire’s e-commerce presence was put to the test, all in the goal of driving top-line sales growth.

Back to the third quarter. The company continues to show good progress on increasing efficiencies and streamlining the business. A retail gross margin of 34% was achieved, which is a significant improvement over the company’s gross margin of 28% back in 2013.

In summary, Canadian Tire remains a steady performer which is thriving in this retail environment and which is passing along its good fortune to shareholders.

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 Karen Thomas does not own shares in any of the companies mentioned in this article.

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