Now Is the Time to Buy Canada’s Best Growth Stock

Get ready for Parkland Fuel Corp. (TSX:PKI) to soar higher.

| More on:
time is money compounding

One-time investor darling that many pundits had called Canada’s best growth stock Dollarama has fallen into disrepute, as its growth trajectory tapers off, seeing it become a target for short-sellers. While this is a disappointing development for investors seeking outsized returns, there is another option; Canada’s largest and fastest-growing independent marketer of fuel and other petroleum products Parkland Fuel (TSX:PKI).

Since the start of 2018, Parkland’s stock has soared by over 50% compared to Dollarama’s 27% loss, and there are signs of further solid gains ahead, which should see it outperform the broader TSX. 

Now what?

Parkland reported a strong third-quarter 2018 with sales and operating revenue surging by 48% year over year to $3.8 billion, which saw Parkland announce record quarterly adjusted EBITDA of $200 million. That notable financial result can be attributed to an 18% year-over-year increase in the volume of fuel and petroleum products delivered. This was primarily driven by the acquisition of Chevron’s Canadian downstream fuels business, including the Burnaby fuel refinery.

Impressively, distributable cash flow for the third quarter more than doubled to $112 million compared to a year earlier, thereby reducing Parkland’s dividend-payout ratio for the period to a very sustainable 35%.

This solid expansion in earnings will continue into 2019 and beyond because of a range of organic growth initiatives and acquisitions. Parkland has established a range of ongoing marketing programs, including the On the Run/Marché Express store concepts as well as the rollout of the company’s proprietary private label brand 59th Street Food Co.

It also made a number of deals during the third quarter that will be accretive for earnings. These include the agreement to acquire 75% of the stock of Sol Limited, the largest independent fuel marketer in the Caribbean for US$1.2 billion, which is expected to be closed during the fourth quarter 2018.

In August 2018, Parkland completed the $176 million purchase of Rhinehart Oil, a distributor of fuels and other petroleum products in Utah, Colorado, Wyoming, and New Mexico, roughly doubling the size of Parkland U.S.A.

Parkland is also in the process of rationalizing the businesses it acquired as part of the Ultramar and Chevron deals and anticipates unlocking $65 million in synergies for the full year 2018, and its value will rise to $180 million by 2020.

The strong year-to-date performance of Parkland’s business combined with the additional earnings growth expected because of further synergies being unlocked from completed asset purchases and the conclusion of further acquisitions put the company on track to meet its 2018 guidance. 

So what?

While investors wait for Parkland’s rapidly expanding earning to lift its share price, they will be rewarded by its regular sustainable monthly dividend. The company has hiked that dividend for the last six years straight to give it a yield of just under 3%. The latest strong results, including the substantial growth of distributable cash flow, means that another dividend hike is in the cards.

For those reasons, Parkland is an attractive buy for investors seeking the opportunity to attain market-beating returns along with a regular growing income stream.

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 Matt Smith has no position in any stocks mentioned.

More on Dividend Stocks

Female hand holding piggy bank. Save money and financial investment
Dividend Stocks

RRSP Savings: 2 Top TSX Dividend Stocks to Build Retirement Wealth

Here's how investors can turn small initial RRSP contributions into substantial savings for retirement.

Read more »

Man holding magnifying glass over a document
Dividend Stocks

2 BMO ETFs Are Less Volatile Than BMO Stock

Two ETFs of a big bank are more suitable for risk-averse or ultra-conservative investors than its stock.

Read more »

Target. Stand out from the crowd
Dividend Stocks

1 Cheap Dividend Stock to Buy as Recession Fears Rise

Great-West Lifeco (TSX:GWO) is an undervalued financial stock that looks like a great buy, even as the world economy tumbles…

Read more »

Profit dial turned up to maximum
Dividend Stocks

2 TSX Stocks Paying Over 5% in Dividends

Add these two blue-chip dividend stocks to your portfolio for wealth growth through shareholder dividends and capital gains.

Read more »

Business people standing near houses models
Dividend Stocks

2 REITs to Own as Rental Housing Demand Rise

Two prominent residential REITs should be on your buy list, as the rental housing market picks up due to rising…

Read more »

Retirement plan
Dividend Stocks

FIRE Movement: How to Retire Early Using Your TFSA

You can increase your financial independence and even retire early by investing in solid dividend stocks in your TFSA over…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: 2 Stocks to Buy Now for a Personal Pension Fund

RRSP investors can find top TSX dividend stocks at cheap prices today.

Read more »

Cogs turning against each other
Dividend Stocks

1 Passive-Income Stock to Counter Volatility

Looking for a stock that can counter volatility now and tomorrow? This stock is a reliable option for growth and…

Read more »