For many Canadian families, the Tax-Free-Saving (TFSA) is a blessing. It offers you the chance to grow your net worth as an investment vehicle that shelters your earnings in your account. Investors either buy shares of a stock that offers significant capital gains to grow the wealth in their TFSA or opt for income-generating stocks that offer decent dividends.
Most high-yield dividend-paying stocks operate in mature industries, which is why most dividend-paying stocks don’t have a lot of growth potential in terms of capital gains.
Stocks with the highest capital gain potential usually operate in nascent industries. The stocks rarely pay dividends at all due to the focus on growth.
Today I’m going to discuss Alimentation Couche-Tard Inc. (TSX:ATD.B). This stock that offers investors both fantastic dividend yield and massive growth potential.
Convenient convenience store
Alimentation is the largest convenience store company in Canada. The firm owns and operates several large convenience store brands in the country, notably Circle K.
Circle K is a chain of convenience stores that also sell fuel to customers. The company spent most of the last 10 years rebranding Irving stores to its brand in Canada.
Circle K has also been making moves in the U.S., where it has a 6.7% share in convenience store fuel sales. The company also has a 2.1% overall gas station fuel market share in the U.S.
Alimentation’s push into the broader market in the U.S. is an encouraging sign for the stock. It’s already capable of delivering consistent dividend payouts due to its established position in the domestic market. It has the potential to grow even more as it ventures into the U.S. due to the room in the market there.
Alimentation has an insatiable appetite for growth. The company keeps making one acquisition after another. The purchase of CST Brands in 2016 was one of its most significant moves, bringing more than 2,000 stores into its network.
The company is in the process of constructing almost 50 new stores as it continues its acquisitions. Typically, the convenience store/gas station market is often quite localized.
Alimentation has a significant advantage over regional players because of its more substantial financial resources. In fact, it acquired 17 new locations from a smaller operator in its most recent quarter.
It’s just making small-time acquisitions, either. Couche-Tard announced that it’s going to place an offer for Australia-based Caltex. It is a company operating with over 2,000 locations that it can add to its portfolio.
At the time of writing, the Alimentation Couche-Tard stock is trading for $44.06 per share. It has a dividend yield of just 0.57%, but also has a phenomenal dividend growth rate of 29% over the past five years. As it continues to acquire more assets, Alimentation could further grow its dividend payouts.
The company can easily afford to increase its dividends without substantial earnings growth due to its 9.98% payout ratio.
Alimentation Couche-Tard could be a fantastic stock to consider allocating some of your contribution room for. It can offer you significant returns through both capital gains and dividend income for years to come.
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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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends ALIMENTATION COUCHE-TARD INC.