Better Buy for Dividends: Loblaw or Metro Stock?

Loblaw stock (TSX:L) and Metro stock (TSX:MRU) may both be grocery stocks, but which is better when it comes to dividend stability?

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In times of economic uncertainty, grocery store stocks have often proven to be resilient investments. In this article, we’ll delve into two prominent players in the Canadian grocery industry, Loblaw Companies (TSX:L) and Metro (TSX:MRU), and analyze their potential for dividend income. Both are giants in the sector, but which one holds more promise for investors? Let’s take a closer look.

Loblaw stock

Loblaws, the supermarket chain, is a household name in Canada. With a rich history dating back to 1919, Loblaws has established itself as one of the nation’s leading retailers. Over the past year, Loblaw’s shares have displayed remarkable stability, providing investors with a reliable haven during uncertain times. The company currently offers a dividend yield of 1.5%, but the question remains: could this dividend increase in the future?

Loblaw recently reported strong financial results for the second quarter of 2023. Key highlights include:

  • Revenue of $13.7 billion, a 6.9% increase
  • Operating income of $927 million, up 24.9%
  • Adjusted EBITDA of $1.6 billion, a 9.4% increase
  • Net earnings available to common shareholders increased by 31.3%

These impressive numbers indicate that Loblaw is adeptly navigating market challenges. The company’s ability to deliver value and savings to consumers has driven sales growth, even in the face of supplier cost increases and higher shrink. With its strong financial performance, Loblaw has the potential to increase its dividend in the coming years.

Metro Stock

Metro stock, also a major player in the Canadian grocery industry, has been serving customers for decades. While its shares have seen a slight dip from $75 to $71 over the past year, Metro offers a dividend yield of 1.7%. To gauge its dividend growth potential, let’s examine its recent financial results:

  • Sales of $6.4 billion, up 9.6% in the third quarter of 2023
  • Net earnings of $346.7 million, up 26.1%
  • Fully diluted net earnings per share of $1.49, up 30.7%

Despite a slight decline in share price, Metro’s financials reflect strong performance. However, investors should also consider a recent development – the successful ratification of a new 5-year collective agreement with unionized employees in the Greater Toronto Area. This agreement includes wage increases and improved pension and benefits for employees, indicating a commitment to fair labour practices and maintaining a competitive edge in the industry.

Bottom Line

Both Loblaw stock and Metro stock are formidable contenders in the grocery industry, and each has its unique strengths. Loblaw has shown robust financial growth, making it a potential candidate for dividend increases in the near future. On the other hand, Metro has demonstrated resilience, a factor that can contribute to its long-term success.

In this volatile market, investors should consider their own financial goals and risk tolerance. While Loblaw stock may offer quicker returns through potential dividend hikes, Metro stock presents a stable option for long-term investors. Ultimately, the choice between these two grocery stocks depends on your investment horizon and risk appetite. Conduct thorough research and consult with a financial advisor to make an informed decision that aligns with your financial objectives.

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 Amy Legate-Wolfe has positions in Loblaw Companies. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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