Some of the best long-term investments to consider for your portfolio are what I like to call “everyday” stocks. These are the businesses that we interact with daily, yet rarely realize that they are viable investments to consider.
Grocers are perfect examples of this. Let’s take a look at two of the largest grocers in Canada to determine which is the better option for your portfolio. Will it be Loblaw (TSX: L) or Metro (TSX: MRU)?
Loblaw stock: The company that can sell you anything
Between the two grocers, Loblaw boasts the larger footprint. In total, Loblaw has an impressive network of over 2,400 stores spread across Canada. That network of stores includes over a dozen different banners, all of which cater to different segments, tastes, and price points in Canada.
And while food is Loblaw’s core business, the company also boasts several other verticals. This includes a health and wellness segment, which includes the largest pharmacy network in Canada, a clothing and apparel business, as well as a growing financial services segment.
This makes Loblaw a uniquely diversified and defensive business that few can match.
As of the time of writing, Loblaw stock trades at just under $120, with a price-to-earnings (P/E) ratio of 20.80. It’s trading relatively flat year to date, but Loblaw stock shows significant growth over a longer time period.
In fact, over the past two years, the stock has soared nearly 60%, whereas over a longer five-year period, that growth hits an insane 120%.
The incredible growth that Loblaw stock has seen can be attributed to a variety of factors. Apart from the full reopening of stores in the past year, which provided a bump to business, Loblaw recently announced a $2 billion capital investment program. The investment calls for up to 40 new stores, while also renovating or converting up to 600 existing locations.
Another key advantage of Loblaw is the company’s overlapping pharmacy network through its Shoppers brand. This allows Loblaw to cross-sell goods, including its popular President’s Choice brand. More importantly, it also provides convenient last-mile service to customers needing to grab something quickly.
Finally, let’s talk dividends. Loblaw provides investors with a quarterly dividend that works out to a 1.49% yield. It’s not the highest yield on the market, but it is covered, and Loblaw has provided nearly annual hikes for several years.
Metro: A focused, growing option for investors. Is that enough?
Unlike the sprawling network and growth into other verticals that Loblaw offers, Metro runs a smaller and more focused operation. The company has a network of approximately 975 grocery stores under several different banners. Metro also boasts a network of 645 drugstores primarily under the Jean Coutu brand.
Together, both segments have operations that are primarily focused within the markets of Quebec and Ontario.
As of the time of writing, Metro trades at just over $72, with a P/E of 19.39. Year to date, the performance of the stock has lagged and trades down 3%. Looking out over the longer one- and two-year points shows growth of 4% and 24%, respectively.
While Metro doesn’t offer the recent performance that Loblaw stock has, the company does offer something else: an intriguing dividend. Metro’s quarterly yield comes in a tad higher than Loblaw’s at 1.65%, but that’s not the major selling point.
Metro is a Dividend Aristocrat with an incredible 28 consecutive years of annual increases to that dividend. This factor alone may be the deciding factor for many but there’s still more.
Turning to results, Metro continues to showcase strong results. In the most recent quarter, the grocer saw sales edge 6.6% higher to $4,554.5 million. Same-store sales from both the food and pharmacy segments also saw impressive jumps of 5.8% and 7.8%, respectively.
Overall, the company earned $218.8 million in the quarter, reflecting a solid 10.4% bump over the prior period.
Which stock wins the grocery war?
Both Loblaw and Metro are great long-term picks that would do well in any larger, well-diversified portfolio. If I were to pick one stock over the other, however, that choice would ultimately fall to Metro.
Metro’s growing dividend, which makes it a great buy-and-forget candidate, is just too hard to ignore.
