There are many retail stocks on the Toronto Stock Exchange that are performing well during the COVID-19 pandemic. Many of them are relying on internet traffic to boost sales during store closures or stay-at-home trends. While many analysts might see retail as a dying industry, it’s also proven itself to be extremely adaptable.
The most flexible and innovative retail firms are certainly succeeding in this new era. Here are two top TSX retail stocks to consider buying in 2020 or at least put them on your watch list.
Canadian Tire: A fantastic dividend yielder
Canadian Tire (TSX:CTC.A) fell to $67.15 during the March market sell-off from a 52-week high of $157.36. At the time of writing, the stock has rebounded to $151.86 per share. The annual dividend yield is excellent at 3.08%.
Canadian Tire boasts three primary business segments: retail, REIT, and financial services. The firm’s retail business sells apparel, sporting goods, and petroleum under a number of store-brand names.
According to the stock’s second-quarter earnings report, Canadian Tire grew its e-commerce sales by 400%. April, May, and June saw top e-commerce sales, as store closures drove consumers to shop online. Consolidated retail sales excluding petroleum increased by 9.3% to $346 million versus the same period last year.
In addition to retail, Canadian Tire stock also manages a closed-end real estate investment trust (REIT) of properties including Canadian Tire stores, mixed-use commercial properties, and distribution centres. The firm’s REIT division grew by 2.8% in AFFO per unit and increased the annual distribution rate to $0.06693 per unit, or an increase of 2%, which began in September 2020.
Finally, the retail stock’s financial services business offers financial products and services, including credit cards, insurance, savings accounts, and guaranteed investment certificates. The financial division performed less well during the second quarter with a revenue decrease of $19.4 million, or 5.9% compared to the prior year.
Canadian Tire attributes this decrease to a decline in credit card receivables of 3.6%. Consumers may have spent less on credit cards during this quarter of the COVID-19 pandemic. Moreover, the company increased its net allowance for expected credit losses in the financial division due to uncertain economic conditions that may result in higher delinquency rates.
Metro: A high-performing retail stock
Metro (TSX:MRU) quickly rebounded after the March market sell-off. The stock fell to $49.03 during the March market sell-off before reaching a new 52-week high of $64.61. At the time of writing, investors are trading the stock for $63.35 per share. The annual dividend yield is at the lower end, but decent at 1.41%.
Metro retails food and pharmaceuticals in Canada through supermarkets and discount stores. The firm increased its sales by 11.6% during the third quarter of 2020 to $5.8 billion. Food same-store sales were up 15.6%, possibly reflecting a shift from restaurants to at-home cooking during COVID-19.
Net earnings increased by 18.5% to $263.5 million. Further diluted net earnings per share jumped 20.9% to $1.04. Although the company accrued COVID-19 expenses of $107 million during the quarter, Metro is actually doing quite well considering the circumstances.
Even better: Metro’s board of directors announced a quarterly dividend of $0.225 per share, which is 12.5% more than the dividend for the same quarter last year. With growing dividends and sales, this is definitely one retail stock that you do not want to ignore in October.
Check out these other top TSX stocks to buy before October ends:
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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 Debra Ray has no position in any of the stocks mentioned.