1 Recession-Proof Business Your Portfolio Needs

Investors looking for a recession-proof business that can weather market volatility should consider Alimentation Couche Tard (TSX:ATD.B).

| More on:
A person suffering

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

The COVID-19 pandemic has taught us many things, and I’m not just referring to how to wear a face mask. The concept of diversifying your portfolio has never had a better real-life example.

Additionally, the near-constant mention of a long and harsh recession to get out of this pandemic remain top of mind.

So what exactly, if anything can investors do to offset some of that risk? Is there a truly diversified recession-proof business that can continue to provide growth?

Fill up your tank (and portfolio)

Gas stations and convenience stores are interesting, yet deceiving investment options. They are often dismissed as investment options because they are interim (and often unscheduled) stops for customers. That by no means implies that those businesses are not successful, however.

There’s a certain untapped potential that lies in the gas and convenience store model and Alimentation Couche-Tard (TSX:ATD.B) knows it.

First, let’s take a moment to mention that Couche-Tard is big. The company has nearly 10,000 locations in North America  scattered across all provinces and 48 U.S. states.

Across the pond, Couche-Tard has approximately 2,700 locations in Europe, and through licensing agreements operates a further 2,400 locations in Africa, Asia, and the Caribbean. That global footprint grants Couche-Tard geographical diversity few other recession-proof businesses can match.

Couche-Tard’s approach to expansion has been nothing short of brilliant. In short, the company has sought out and acquired an ever-increasing number of acquisition targets over the years.

Those acquisitions have exposed Couche-Tard to new markets and product opportunities, which the company can apply to its sprawling global network.

As the new acquisitions are integrated into Couche-Tard’s network, they are rebranded. In turn, those rebranded locations provide synergies during earnings season that feeds Couche-Tard’s superb growth.

Is Couche-Tard a recession-proof business?

The necessity of the services that Couche-Tard provides means that many of its businesses remained opened throughout the pandemic. This is a rare feat in the retail segment, and Couche- Tard has found ways to thrive and innovate. Couche-Tard continues to roll out delivery services across its North American network.

In terms of results, in the most recent quarter, Couche-Tard reported net earnings of $659.9 million, or $0.59 per diluted share. This reflects solid gains over the $612.1 million, or $0.54 per diluted share reported in the same period last year. Apart from that solid growth, the company is on solid financial footing.

Apart from the US$2.5 billion in revolving credit at its disposal, Couche-Tard has US$1.8 billion in cash. While that’s not entirely the perfect recession-proof business, it should be on every investor’s shortlist.

Income-seeking investors looking at Couche-Tard will not be particularly attracted by the paltry 0.65% yield on offer. If anything, the payout resembles more of a rounding error. Still, there is hope. Couche Tard has provided handsome annual upticks to its dividend over the years.

By example, over the past decade, Couche-Tard’s dividend has provided an impressive CAGR of over 25%. Don’t expect Couche-Tard to offer a 4% yield anytime soon (if ever), but what the company does offer is growing, illustrated by the 12% hike announced this year.

Final thoughts

There’s no such thing as an investment that is without risk. As well, these are unprecedented times where the market looks more like a rollercoaster than anything else.

That’s not to say there aren’t good options to consider buying at the moment, however. Couche- Tard is a prime example of a recession-proof business that should be on the radar of every growth-seeking investor.

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 Demetris Afxentiou has no position in any of the stocks mentioned. The Motley Fool recommends ALIMENTATION COUCHE-TARD INC.

More on Investing

Hands holding trophy cup on sky background
Investing

3 Growth Stocks That Could Be Huge Winners in the Next Decade and Beyond

Here are three top TSX growth stocks that may be worth a look, given the significant valuation declines these stocks…

Read more »

edit Back view of hugging couple standing with real estate agent in front of house for sale
Dividend Stocks

Why Real Estate Stocks Are a No-Brainer Addition to Your Portfolio

Real estate stocks, especially REITs, offer some distinct advantages over other types of stocks, making them must-have additions to most…

Read more »

Man data analyze
Stocks for Beginners

Beginners: 2 Market-Beating Stocks Just Getting Started

Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM) and Constellation Software (TSX:CSU) are proven market beaters that could continue their ways.

Read more »

oil and natural gas
Energy Stocks

Small OPEC+ Oil-Output Hike: Buy More Energy Stocks?

Energy stocks could soar higher, because oil markets will remain tight due to the small production increase by OPEC+.

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

3 Top TSX Dividend Stocks to Buy for Monthly Passive Income

Top TSX stocks with monthly dividends now trade at cheap prices for investors seeking passive income.

Read more »

edit Person using calculator next to charts and graphs
Investing

Where to Invest $500 in the TSX Right Now

Long-term investors can look to buy stocks, including Suncor Energy and Shopify, as they are poised to outpace the broader…

Read more »

Canadian Dollars
Dividend Stocks

Create Free Passive Income and Turn it Into Thousands With 1 TSX Stock

If you can't afford to invest, you can certainly create passive income another way and use that to invest in…

Read more »

falling red arrow and lifting
Investing

2 Oversold TSX Stocks That Should Bounce Back

Stocks that are oversold without an external catalyst like a market crash or a weak sector might be risky buys,…

Read more »