A Bull Market Could Be Here: You Haven’t Missed Out on Alimentation Couche-Tard

Alimentation Couche-Tard Inc (TSX:ATD) stock has risen a lot, but it could rise further.

| More on:
stock market

Image source: Getty Images

We may be in the first innings of a new bull market in stocks. Year to date, the TSX index has risen 2.3%, and the S&P 500 has risen 12.5%. The NASDAQ-100 is already in a bull market: it’s up 27% year to date!

If the stock market momentum from the first half of the year continues into the second, then investors are going to have a good time. If you believe that such a scenario will unfold, you might wonder what you should buy.

Alimentation Couche-Tard (TSX:ATD) is one stock you could strongly consider.

ATD has been one of Canada’s best performing stocks over the last decade. It has risen 1,260% since March 2012, which is a market-beating return by any standard. The stock has done so well that you might be wondering whether you “missed the opportunity.” It’s pretty rare for a stock to go up 1,260% and then do it once more. However, Alimentation Couche-Tard still has the characteristics that made it a good investment back in the old days. In this article, I will review those characteristics one by one.

Strong fundamentals

The number one thing that ATD has going for it right now is strong fundamentals, including:

  • Strong revenue growth.
  • Positive and growing free cash flow.
  • A 17% gross margin (gross profit divided by revenue).
  • A 0.476 debt to equity ratio.

The low debt-to-equity ratio is particularly impressive. Normally, rapid growth stories like ATD tend to have heavy amounts of debt, because they spend so much money on expanding their business, which requires debt. That hasn’t been the case with ATD. The company achieved most of its growth and expansion by investing its profit back into its business. As a result, it hasn’t had to borrow as extensively as some of its competitors have. The end result has been huge capital gains, and a tiny (0.76%) dividend yield. Some dividend investors might consider ATD’s tiny yield a negative, but it’s not a problem as long as the company keeps growing. If it does, then its stock should rise and its dividend should increase over time.

Rising oil prices

Although Alimentation Couche-Tard isn’t a pure play oil stock, it does partially operate as an energy company: it runs gas stations. So, like many oil companies, its earnings should rise when oil prices rise. Gasoline prices are very closely correlated with oil prices, and oil prices have risen considerably in the last few months, going above $80. If oil prices keep rising, then ATD’s fuel sales will rise. Unlike pure play oil companies, however, Alimentation Couche-Tard doesn’t need high oil prices in order to grow. So, it’s arguably a “safer bet” than oil and gas stocks are.

Foolish takeaway

Alimentation Couche-Tard has given investors a lot to celebrate over the last decade. Between its rising stock price and low but growing dividend, it has made many investors wealthy. When you witness a growth story like this one, it’s only natural to wonder whether it’s over. Fortunately, ATD’s recent results indicate that it still has the virtues which made it great in the first place.

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 Andrew Button 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.

More on Dividend Stocks

woman retiree on computer
Dividend Stocks

2 Dividend Stocks That Will Pay You for Years and Years

Top TSX dividend stocks are starting to look oversold.

Read more »

TFSA and coins
Dividend Stocks

2023 TFSA Contribution Time: 2 Dividend Stocks to Buy With $6,500

Are you interested in using some of your 2023 TFSA contribution room? Here are two dividend stocks to buy with…

Read more »

money cash dividends
Dividend Stocks

2 Stocks Under $100 You Can Buy and Hold Forever

While many stocks continue to trade cheaply, here are two of the best in Canada to buy today and hold…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

Retirees: 2 High-Yield Dividend Stocks to Buy for Passive Income

Given their solid underlying businesses and high dividend yields, these two dividend stocks are an excellent buy for retirees.

Read more »

Early retirement handwritten in a note
Dividend Stocks

2 TSX Dividend Stocks to Buy Today to Help You Retire Early

Buying these two reliable TSX dividend stocks today can help you retire early if you hold them for the long…

Read more »

Doctor talking to a patient in the corridor of a hospital.
Dividend Stocks

Is Northwest Healthcare Stock Oversold?

Northwest Healthcare stock has plummeted 41% so far this year on concerns over its financial health as interest rates shot…

Read more »

TFSA and coins
Dividend Stocks

How to Earn $1,800 Per Year in a Self-Directed TFSA

This TFSA investing strategy can reduce risk and still generate attractive tax-free passive income.

Read more »

edit Sale sign, value, discount
Dividend Stocks

TFSA Income: 2 Great Canadian Dividend Stocks Now on Sale

Top TSX dividend stocks now offer attractive yields.

Read more »