Experts and analysts have started to aggressively sound alarms that a recession is right around the corner in Canada. Predictably, this has led to some volatility for the S&P/TSX Composite Index, which shed 94 points on Thursday, September 7. In this environment, Canadian investors might want to target defensive stocks. A defensive stock typically provides consistent dividends and very stable earnings, regardless of broader macroeconomic trends. Today, I want to zero in on a super safe, Canadian stock that is worth snatching up in September 2023. That stock is Dollarama (TSX: DOL). Let’s jump in.
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Why dollar stores are fantastic safe stocks in the present day
The concept of a low-cost variety store goes all the way back to the 19th century. In 1879, Fran Winfield Woolworth opened the Great Five Cent Store in Utica, New York. That created the institution of so-called five and 10-cent stores. At the time, the prevailing thought was that a store could not sustain long-term business by solely offering low-priced goods. Woolworth’s success obliterated that assumption, and the concept has undergone a steady evolution in the nearly 150 years that have followed.
Dollar stores began to proliferate in the late 1990s as a new iteration of discount variety stores. These niche stores performed well, but they truly showed their potential following the Great Recession. Now, dollar stores entertain a diverse range of shoppers and have evolved to the point of offering direct competition to grocery retailers.
Canadian investors should treat dollar store chain stocks the same way they might seek out top grocery retailers like Loblaw Companies as safe stocks.
How has Dollarama performed over the past year?
Shares of Dollarama have jumped 2.3% month over month as of close on Thursday, September 7. Meanwhile, the safe stock has climbed 9.5% so far in 2023. Its shares are now up 10% in the year-over-year period. Canadian investors can see more of its recent and past performance with the interactive price chart below.
Should investors be happy with the company’s recent earnings?
Dollarama recently announced that it was set to release its second-quarter (Q2) fiscal 2024 earnings before markets open on Wednesday, September 13. In Q1 FY2024, the company reported comparable sales growth of 17%. EBITDA stands for earnings before interest, taxes, depreciation, and amortization. This metric aims to give a clearer picture of a company’s profitability. Dollarama delivered EBITDA growth of 22% to $366 million in Q1 2024.
Total sales increased 20% year over year to $1.29 billion in Q1. Moreover, operating income climbed 26% to $277 million. Better yet, diluted earnings per share jumped 28% to $0.63. The company announced 21 net new stores opened in Q1 — up from 10 net new stores in Q1 fiscal 2023.
Here’s why I’m buying Dollarama as a safe stock today
This safe stock currently possesses a price-to-earnings ratio of 30, which puts Dollarama in middling value territory at the time of this writing. Moreover, Dollarama offers a quarterly dividend of $0.071 per share. That represents a modest 0.3% yield. Dollarama has delivered dividend growth of 10 consecutive years. This means that the defensive stock is also a Dividend Aristocrat. I’m looking to snatch up shares of Dollarama ahead of its Q2 earnings release.
