How You Can Diversify Today and See Growth for Decades

Investors looking for a long-term investment that has significant growth opportunities as well as an exposure to the retail market should consider Alimentation Couche Tard (TSX:ATD.B)

Is your portfolio adequately diversified to include a broad cross-section of the market? The importance of maintaining a well-diversified portfolio is something that can’t be understated.

The retail sector is one area of the economy that investors have shied away from in recent years, particularly as the disruptive force of e-commerce vendors and evolving consumer preferences continue to eat away at both the foot traffic and sales numbers of traditional retailers. But what if there was an area of retail that has not only withstood that mobile-based shopping revolution, but also established a sizeable moat around its operations?

Let’s take a look at one such investment, Alimentation Couche-Tard (TSX:ATD.B) and why this could be one of the most important additions to your portfolio this year.

Convenience stores and gas stations as an investment? 

For those who are unaware, Couche-Tard has a network of convenience stores and gas stations stretching across North America and into Europe, and minimally into Asia.

That network of locations currently stands at a little over 13,000, making Couche-Tard one of the largest players on the market. It’s worth noting that the company has used its weight and financial muscle in the past to acquire smaller regional players to add to its massive network.

That aggressive stance toward expansion has been the hallmark of the company’s growth over the past few years.

Once acquired and rolled out under one of Couche-Tard’s growing number of brands, the new acquisitions are fully integrated into Couche-Tard’s network, where the company can realize any cost saving synergies as well as introduce successful products from one location to any number of others. Couche-Tard’s CST and Holiday Stores acquisitions are perfect examples of this.

Both deals added 2,000 locations to Couche-Tard’s network. Synergies from the CST deal hit US$200 million in the last quarter and are likely to increase further in the next quarterly announcement. In a similar vein, highly successful private label menu items from the Holiday Stores network are set to be rolled out to a wider audience.

Why you should consider buying Couche-Tard

First, Couche-Tard’s dominance in the market coupled with the fact that the landscape is still littered with smaller regional players puts Couche-Tard in a favourable place where it can continue to absorb smaller players and grow its base. This is a point that has been discounted by some critics, as Couche-Tard’s last major acquisition came well over a year ago. To put it another way, just because Couche-Tard hasn’t completed a major acquisition in the past year is no reason to discount the prospect that another could be coming soon, thereby introducing a host of new synergies and revenue-producing opportunities.

Second, let’s take a moment to talk about future market opportunities. Most of us see gas stations and convenience stores not as destinations, but rather as interim stops we make to grab something while moving to our ultimate destination. We wouldn’t think of sitting down, grabbing a meal and conversing with friends outside a convenience store or gas station currently, but that’s a growing trend in some markets in Asia at the moment, and Couche-Tard has expressed an interest in tinkering with that model with stores in that region in the past. Furthermore, it’s not hard to see that model adopted in North America either, particularly as electric vehicles with longer charging times continue to penetrate the market, thereby providing a player such as Couche-Tard with an ideal entry point.

Finally, there’s the company’s performance. We’re still a few weeks out from the latest quarterly announcement, but in the most recently available quarter, the company reported net earnings of US$473.1 million, or US$0.84 per share, representing an increase over the US$432.5 million, or US$0.76 per share reported in the same quarter last year. Handsome gains, continued growth, and an emphasis on trimming costs- what more could investors ask for? An appetizing dividend perhaps, but there are other market options for dividend-seeking investors.

It’s also worth noting that Couche-Tard is one of a handful of companies that survived the dismal end to 2018 in the black and is thus far up nearly 8% in 2019.

Fool contributor Demetris Afxentiou has no position in any of the stocks mentioned. Alimentation Couche-Tard is a recommendation of Stock Advisor Canada.

More on Investing

investor schemes to buy stocks before market notices them
Dividend Stocks

New to Investing? Here Are 5 Canadian Stocks to Hold Forever

With their well-established businesses, resilient cash flows, and attractive long-term growth prospects, these five Canadian stocks are well positioned to…

Read more »

Income and growth financial chart
Dividend Stocks

Here Are 4 Top Canadian Stocks That Just Raised Their Dividends

Are you looking for Canadian stocks that regularly increase their dividends? These four stocks just raised their dividends by a…

Read more »

boy in bowtie and glasses gives positive thumbs up
Dividend Stocks

Best Blue-Chip Dividend Stocks in Canada

Even for the best of blue-chip dividend stocks, investors should still seek to buy at a margin of safety.

Read more »

hand stacking money coins
Dividend Stocks

The Top 3 Dividend Stocks in Canada for a $10,000 Portfolio

Given their reliable business models, consistent payout, and healthy growth prospects, these three dividend stocks offer attractive buying opportunities.

Read more »

Canadian Dollars bills
Dividend Stocks

A 4.9% Dividend Stock Paying Monthly Cash

If you want a nice 4.9% monthly dividend from a stable, low-risk stock, this REIT could deliver steady long-term returns.

Read more »

cookies stack up for growing profit
Dividend Stocks

1 Undervalued Canadian Dividend Stock I’d Buy Now and Hold for Years

Magna’s stock is near a 52-week high, but rising profits, cash flow, and buybacks could mean it’s still undervalued.

Read more »

alcohol
Tech Stocks

1 Tech Stock That Has Created Millionaires and Could Keep Making More

Shopify once turned a $15,000 investment into over $1 million, but today’s Shopify needs new growth engines like AI commerce…

Read more »

up arrow on wooden blocks
Tech Stocks

Here’s How I’d Double My TFSA Contribution

These Canadian growth stocks have solid prospects and can help TFSA investors to double their contribution room.

Read more »