Better Buy: Loblaw Stock or Alimentation Couche-Tard?

Loblaw and Alimentation Couche-Tard own defensive businesses and consistently generate solid growth. They enhance shareholders’ returns through higher dividend payments.

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The TSX stocks have witnessed a recovery, reflecting easing inflation and the expected slowdown in further interest rate hikes. However, with the macro uncertainty, it’s prudent to add a few low-volatility and defensive in your portfolio to add stability and consistent growth. Thankfully, the Canadian stock market has several low-risk stocks to choose from. I’ll restrict to retailers like Loblaw (TSX:L) and Alimentation Couche-Tard (TSX:ATD).

Both these Canadian corporations have well-established businesses. Further, these retailers have been steadily growing their businesses regardless of the market conditions and consistently generate solid revenues and earnings. It’s worth noting that companies sell essentials and food items, which is why their businesses are less cyclical and perform well, even in an economic downturn. Moreover, these companies regularly enhance their shareholders’ returns through share repurchases and dividend payments. 

As these firms have solid fundamentals and are great investment choices, let’s examine which of these stocks could be a better buy near the current levels. 

Loblaw: An attractive low-risk stock

Loblaw is the largest food and pharmacy retailer in Canada. It offers grocery, personal care products, apparel, and other general merchandise. Owing to its large scale, wide product offerings, value pricing, and presence across more than 2,400 locations, Loblaw is an attractive low-risk stock. 

The company continues to attract value-driven consumers through its discount stores. Loblaw’s discount stores offer low-priced private-label brands that provide value and support its top-line growth. Meanwhile, its inflation-fighting price freeze, with a cap on no-name products, drives its traffic. In addition, its attractive loyalty rewards program and offers and growing penetration of private-label food products augur well for growth.

Besides the company’s sales-driving initiatives, Loblaw also benefits from its strategic procurement, focus on optimizing its retail network, and the modernization and automation of its supply chain, which supports its margins and improves productivity. 

The strength in its retail business and a growing earnings base led the company to repurchase 12.1 million shares in 2022. Moreover, it increased its dividend by 12.9%. Loblaw is trading at a forward price-to-earnings multiple of 14.5, which is lower than the historical average of about 16.9. At the same time, it offers a reliable yield of over 1.53% near the current levels.

Alimentation Couche-Tard offers stability and high growth

Like Loblaw, Alimentation Couche-Tard benefits from its defensive business model. Further, the convenience store operator delivers high growth and enhances its shareholders’ returns by consistently increasing its dividend. 

Couche-Tard’s store base of 14,468 stores, coast-to-coast presence in Canada, and a solid footprint in the U.S. drives its revenues. Its top line has increased at an annualized growth rate of 7% in the past decade. Further, its lean corporate structure, procurement efficiency, low-cost debt, and cost discipline support its profitability. Notably, its adjusted EPS (earnings per share) has grown at an average annual growth rate of 19% during the same period. 

Thanks to its solid growth, Couche-Tard enhances its shareholders’ returns through aggressive share repurchases and dividend growth. It repurchased 52 million shares in fiscal 2023. Moreover, its dividend increased by a compound annual growth rate of 26.6% in the last 10 years. 

Overall, Couche-Tard is solid stock offering stability, income, and growth. It is trading at a price-to-earnings multiple of 17.2, which is in line with its historical average. 

Bottom line 

Loblaw and Couche-Tard offer stability, growth, and income. However, when choosing one stock, Loblaw, with its better returns (up 74% in three years compared to ATD’s growth of 48%), steady growth, and lower price-to-earnings multiple, looks more compelling investment near the current levels.   

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 Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alimentation Couche-Tard. The Motley Fool has a disclosure policy.

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