Alimentation Couche-Tard (TSX:ATD) and Enbridge (TSX:ENB) are two of Canada’s most popular stocks. The former is a retailer/gas station operator best known in Canada for its Circle K chain. The latter is a pipeline stock that also supplies natural gas service to Ontario. The two companies might not appear to be similar at first glance, but there is a similarity.
Both are indirectly involved in the oil business. Neither company directly extracts or refines oil, but both are involved in its distribution. Enbridge is involved in oil transportation via its pipelines, while Alimentation is involved as a seller of refined products like diesel and gasoline.
When comparing stocks like Alimentation and Enbridge, it’s tempting to “play nice” and treat them like they’re both equally as good. Certainly, that’s the polite way to do it. In my opinion, it isn’t accurate in this case. For a number of reasons, I find Alimentation Couche-Tard to be a lot stronger than Enbridge. I will outline these reasons briefly in the ensuing paragraphs.
A stronger balance sheet
One advantage that ATD has over ENB is a stronger balance sheet. As of its most recent earnings release, ATD had
- $8.8 billion in current assets;
- $7.4 billion in current liabilities;
- $7.9 billion in debt; and
- $17.5 billion in equity.
So, ATD has a 1.2 current ratio and a 0.45 debt-to-equity ratio. With the current ratio, higher is better. With the debt-to-equity ratio, below one is ideal. So, Alimentation earns high marks on liquidity and solvency.
Now, let’s look at the same numbers for Enbridge:
- $8.9 billion in current assets
- $14 billion in current liabilities
- $72 billion in debt
- $53 billion in common equity
So, we’ve got a 0.63 current ratio and a 1.35 debt-to-equity ratio — both much worse than Alimentation’s figures.
More geographically diversified operations
Another advantage that ATD has over ENB is more geographically diversified operations. Enbridge pretty much ships Canadian crude to the U.S. and supplies natural gas to Ontario. Alimentation, however, operates gas stations in Canada, the U.S., and Europe. So, it has more exposure to more different markets and is less exposed to economic woes that may befall one area compared to Enbridge.
Better financial discipline
Last but not least, Alimentation’s management has shown better financial discipline over the years than Enbridge’s management has. Recall the section on balance sheets, where I showed that Alimentation has better liquidity and solvency ratios than Enbridge. That’s not an accident but rather the result of the different strategies these two companies have pursued over the years.
Whereas Enbridge has favoured paying out huge percentages of its earnings as dividends — typically more than 100% — Alimentation has re-invested its profits into growing its business. As a result, Alimentation has achieved both more growth than Enbridge and a healthier financial position. In order to pay enormous dividends like Enbridge, you need to borrow to finance growth, and in this environment of rising rates, that fact is becoming widely known.
Foolish takeaway
Alimentation Couche-Tard and Enbridge are both important companies. But between the two of them, one is clearly the better stock. With its superior growth, geographic diversification and financial health, ATD has ENB beaten.
