2 Retail Stars to Add to Your TFSA This Month

Dollarama Inc. (TSX:DOL) and Canadian Tire Corporation Limited (TSX:CTC.A) are solid options to consider with tax season in the rear-view mirror.

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Statistics Canada released retail trade numbers for February on April 20. Retail sales climbed 0.4% in February 2018 to $49.8 billion with activity at new car dealers and general merchandise stores powering the gain.

Sales at general merchandise stores increased 2% for the fourth time in the last five months. Canadian economic growth has remained fairly strong, and GDP rebounded in February after a January hiccup. This growth is good news for general merchandise stores and retail trade going forward.

Today, we are going to take a look at two of the strongest Canadian retail companies available on the Toronto Stock Exchange (TSX). The consistent performance of general merchandise stores in as many months should drive investors to consider both for their TFSA in May.

Dollarama Inc. (TSX:DOL)

Dollarama is a Montreal-based dollar store retailer. Shares of Dollarama have dropped 6% in 2018 as of close on May 1 but have still climbed 23% year over year. The stock has suffered the 2018 decline in spite of positive Q4 and full-year results.

Higher retail sales in Ontario and Quebec, which saw activity rise 0.7% and 0.5%, respectively, is good news for Dollarama. The dollar store company has a significant footprint in both provinces. Dollarama leadership was confident in its ability to sidestep any negative impacts from Ontario minimum wage hikes with most of the burden coming down on competitors.

Dollarama released its fourth-quarter results on March 29. The company increased its quarterly cash dividend to $0.12 per share, representing a modest 0.3% dividend yield. Dollarama announced plans to expand its Montreal-area distribution centre by 50%. For the full year, Dollarama reported that sales climbed 10.2% to $3.26 billion, and EBITDA increased 17.5% to $826.1 million.

The top Canadian dollar store retailer has been a top TSX stock since the financial crisis. The success of dollar store retail shows no signs of letting up, and it has proven resilient regardless of general economic conditions. Dollarama’s price is enticing after dropping from all-time highs in late January, but investors should exercise caution considering its still-high valuation.

Canadian Tire Corporation Limited (TSX:CTC.A)

Canadian Tire is a Toronto-based retailer that operates throughout Canada. Shares of Canadian Tire have climbed 7% in 2018 and are up 5% year over year. Sales activity at motor vehicle and parts dealers were up 1.4% in February and provided the largest contribution in dollar terms to retail sales in that month.

Canadian Tire is expected to release its first-quarter results early this month. In Q4 2017, consolidated retail sales rose 4.9% to $215.8 million, and consolidated EBITDA climbed 10.2% year over year. For the full year, Canadian Tire reported a 5.9% increase in consolidated revenue to $753.9 million, and diluted earnings per share rose 15.7% to $10.67.

The company also declared a dividend of $0.90 per share, representing a 1.7% dividend yield. The stock remains one of the most attractive retail picks available on the TSX.

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 Ambrose O'Callaghan has no position in any of the stocks mentioned.

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