Here’s Why These 2 Top Retail Stocks Are Strong Investments

Alimentation Couche-Tard Inc. (TSX:ATD.B) and one other stock could reward Canadian investors for years to come, no matter the market conditions.

| More on:
Lady holding mobile phone and shopping bags

Image sources: 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

Investing during a pandemic was never going to be a clear-cut undertaking. From banks to energy producers, some of the strongest asset types have proven to be disappointing. However, two consumer asset types are looking hot right now. In fact, key names in the consumer staples and consumer durables classes could see investors packing years of growth in their stock portfolios for many years to come.

Consumer staples stocks are classic safety plays

There are few asset types more defensive that consumer staples. Groceries have long been pegged as recession-proof. The current market has shown that they are pandemic-proof, too. An exemplary pick in this asset class is Alimentation Couche-Tard (TSX:ATD.B). This is a nicely diversified name both in terms of its business operations and international markets.

It’s also a rewarding growth stock with an expansive management style. The company has grown its footprint from 6,000 to 16,000 sites in the course of the past decade. While its income is sourced primarily from the U.S., around 30% is sourced predominantly from Canadian and European sites. Total shareholder returns could hit 49% by 2023, making for a satisfying growth stock in a strongly defensive sector.

A consumer durables growth stock

Retailers have long known the remarkable cash-generation ability of children. Call it “pester power” — the add-ons, gifts, and holiday distractions that keep toy companies doing business hand over fist.

Well, some of them. It’s arguable, in retrospect, that Toys ‘R’ Us could have taken its business in another direction. Operational blunders are easily made when times are good, after all. In fact, it’s arguable that, given a more adaptive business model, Toys ‘R’ Us might even have weathered the current pandemic. Indeed, other names are managing to remain profitable in this space, albeit less so than usual.

Consider Spin Master (TSX:TOY), for instance. A 31% year-on-year pullback makes for an undervalued name well positioned to dominate the disordered toy market. And Spin Master — like many other weighed-upon retailers — could break out given a sustained recovery rally. But what’s particularly of note here is the combination of the all-weather status of toys with a comprehensive wide-moat business network. A robust balance sheet and positive earnings outlook add up to a moderately strong buy.

Balancing defensiveness and growth

Buying shares in healthy retail companies for their steady growth potential is a strong way to steadily increase wealth in a stock portfolio. Names like Alimentation Couche-Tard and Spin Master represent canny plays in an otherwise embattled sector. These are both names that could see reliable share price appreciation for years to come. The grocery giant also pays a 0.65% dividend. A very low payout ratio of 9% leaves plenty of room for dividend growth.

It would be understandable, given the current situation, to look at the retail sector’s woes and avoid this asset type altogether. However, pairing the defensive dividends and growth possibilities of Alimentation Couche-Tard with Spin Master’s capital gains potential could pay off. With total returns of around 47% in three years, for instance, Alimentation Couche-Tard give a significant boost to a stock portfolio.

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 Victoria Hetherington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Spin Master. The Motley Fool recommends ALIMENTATION COUCHE-TARD INC.

More on Dividend Stocks

Dots over the earth connecting the world
Dividend Stocks

3 of the Top-Growing Stocks on Earth

Market volatility remains high in Q3 2022, but it’s easy to identify the top-growing stocks on Earth.

Read more »

Profit dial turned up to maximum
Dividend Stocks

1 Undervalued Canadian Dividend Stock to Buy for TFSA Passive Income and Total Returns

This cheap Canadian energy stock provides an attractive dividend yield for TFSA passive income and a shot at some big…

Read more »

money cash dividends
Dividend Stocks

Want Passive Income? 1 TSX Stock for $8/Day in Dividends

If you need cash right away, then this TSX stock can make you passive income from a stable dividend that…

Read more »

edit Balloon shaped as a heart
Dividend Stocks

My 3 Favourite TSX Dividend Stocks Right Now

Canadian dividend stocks make for great long-term buy-and-hold investments.

Read more »

value for money
Dividend Stocks

3 Incredibly Cheap Dividend Stocks to Buy for Dependable Passive Income

Now is an excellent time to load up on Canadian dividend stocks. Here are top picks that are all trading…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

3 Simple TSX Stocks to Buy With $25 Right Now

Canadians with capital of as low as $25 can purchase three simple stocks right now and earn recurring passive income…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

2 No-Brainer U.S. Stocks for Investors in August

Here are two undervalued U.S. stocks to diversify your investment portfolio. They both pay safe and growing dividends!

Read more »

Growth from coins
Dividend Stocks

1 Dividend Juggernaut That Could Grow Fast in a Recession

Restaurant Brands International (TSX:QSR)(NYSE:QSR) stock looks way too cheap to ignore, even going into an economic downturn.

Read more »