Is Your Portfolio Missing Loblaw Stock?

Loblaw (TSX:L) isn’t just the largest grocer in Canada. Loblaw stock holds massive long-term potential wrapped in a defensive shell.

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Some of the best long-term options for investors to consider are stocks that we interact with on a daily basis yet often dismiss as investments. These everyday stocks provide a necessary service that we take for granted, making them great options. One such option is Loblaw (TSX:L). Here’s why you need some Loblaw stock in your portfolio.

Loblaw stock: The grocer that does so much more

Loblaw is best known as Canada’s largest grocer and food stock, but the company is an absolute behemoth. The company also happens to be one of Canada’s largest employers with approximately 190,000 employees in over 2,400 locations across Canada.

Loblaw’s food segment includes over a dozen well-known brands and banners. Turning to health and wellness, Loblaw’s operates the most extensive pharmacy network in Canada through its Shoppers Drug Mart brand. That pharmacy network also allows Loblaw the capacity to cross-sell some of its grocery merchandise in its pharmacy stores.

The company also boasts a growing presence in fashion, through its Joe Fresh brand. The brand comprises both freestanding stores as well as retail locations within Loblaw and Shoppers stores. If that’s not enough, Loblaw also boasts a financial arm as well as its PC Optimum rewards program.

In short, Loblaw has its tentacles in multiple aspects of Canadian’s lives, making Loblaw stock a very defensive, and potentially lucrative long-term option for investors.

Let’s talk results

One of the other benefits of operating a large business that blankets the entire Canadian market across multiple verticals is diversification. And that was evident in the most recent quarter.

In Loblaw’s most recent quarterly update announced last month, the company announced revenue of $12,995 million. This is reflected in a 6%, or $733 million increase over the prior year. Loblaw’s retrial arm saw strong sales of $12,795 million, reflecting a 5.7%, or $690 million increase.

With that retail segment, both food and drug same-store sales saw increases in the quarter of 3.1% and 7.4%, respectively. E-commerce sales dipped 1.1% year over year, reflecting the higher level of online sales in the prior year when some lockdowns were still in place.

The financial services segment also saw strong growth, fueled by higher interest from credit card receivables. Specifically, revenue from the segment surged $52 million, or 19% over the prior period, coming in at $326 million for the quarter.

Overall, the company earned $1.55 per common share on an adjusted basis. This reflects a $0.19 per common share or 14% increase over the prior period.

What about dividends?

When it comes to dividends, Loblaw stock is often overlooked as a viable income producer. That’s unfortunate, because the stock does have plenty to offer income investors.

Loblaw currently pays out a quarterly dividend that carries a respectable yield of 1.53%. While that’s not the highest return on the market, it is well covered and rising.

By way of example, given a $40,000 investment in Loblaw stock (as part of a larger, well-diversified portfolio), investors can expect a first-year income of just over $600. The reason I say “first year” is because Loblaw continues to provide annual bumps to that dividend.

In fact, in the most recent quarterly announcement, Loblaw announced a 10% bump to its dividend, bringing the per common share payout to $0.446. That represents the 12th consecutive annual increase to the dividend. That fact alone makes Loblaw stock an intriguing option for buy-and-forget investors to consider.

That’s not to say that Loblaw stock isn’t a great long-term growth option. Over the trailing two years, the stock has surged over 50%; over the past five years, that surges to an incredible 118% gain.

Final thoughts

No stock, even a defensive option like Loblaw, is without risk. Fortunately, Loblaw is a well-diversified market leader within its segments, with plenty of long-term growth potential.

In my opinion, Loblaw is a great long-term option for investors to consider as part of a larger, well-diversified 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 Demetris Afxentiou has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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