There are many great dividend stocks in Canada, but they seldom go on sale by considerable amounts, unless there’s fear in the air over at Bay Street. Undoubtedly, there have been feelings of unease of late, with central banks looking to sacrifice economic growth in an effort to get rid of the recent pandemic-induced bout of inflation. Inflation can be a nasty beast that can be very hard to get rid of.
Moving ahead, investors should focus on quality value stocks that have enough pricing power to help investors protect their wealth from any further rises in inflation. Indeed, rate hikes have already kicked off, but we’ve yet to see those CPI numbers slip. If Canadian inflation follows in the footsteps of the U.S., things could get really ugly in a hurry if the Bank of Canada doesn’t start getting much more aggressive.
Yes, inflation isn’t as bad in Canada, but it’s still horrible from a historical standpoint. Further, the Canadian economy has been given a jolt by inflation. Arguably, the Bank of Canada can act more hawkish without sparking a severe decline in the equity markets.
In this piece, we’ll look at North West Company (TSX: NWC) and Alimentation Couche-Tard (TSX: ATD): two retailers that can fare well as the risk of moving from inflation to stagflation looks to increase.
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North West Company
As economic growth stalls with problematic levels of inflation, it’s the consumer staples that may be worth a second look. They offer necessities that experience rather stable demand, regardless of what stage in the economic cycle we’re in. Indeed, North West is an intriguing, underrated defensive dividend stock that may deserve to get a bid higher, as the risk appetite looks to fade.
The $1.76 billion retail firm serves remote communities in northwest Canada and Alaska. Undoubtedly, there’s not much selection in such underserved destinations. That’s a moat component for North West, which has thrived in its niche corner of the retail space. The stock recently plunged around 8% on the back of an analyst downgrade and an underwhelming quarterly report.
The analyst noted that rural areas could see consumer spending fall due to the “scaling back” of government support programs. Indeed, it’s a near-term headwind that could weigh heavily. I think the company’s resilience through the pandemic and supply chain woes is remarkable, though. And the 11.6 times trailing earnings multiple, I believe, is ridiculously cheap. The 4% dividend yield is just a cherry on top of a fully loaded sundae.
Alimentation Couche-Tard
Couche-Tard is a wonderful convenience store giant that’s flirting with new all-time highs at around $57 and change per share. With a rock-solid balance sheet, the company can go bargain-hunting in the global convenience store (and grocery) scene. Undoubtedly, the firm is fully aware of the EV boom on the horizon, as demonstrated by its presence in Norway, where EVs are quite prominent.
The rollout of fresh food has paid major dividends for the firm. Over the next 10 years, I’d look for a charging station rollout and increase in high-margin merchandise offerings to be a boon on margins. Indeed, it’s an uncertain time for the convenience stores but arguably an exciting one.
The big question is where the company will go with its next big acquisition. It has many options from grocery stores to other convenience store chains, big and small. In any case, Couche is a deep-value play that can thrive in an inflationary or mildly recessionary environment.
