Alimentation Couche-Tard (TSX:ATD) started as one little convenience store in Quebec in 1980. Little did anyone think that it would grow into an empire of over 14,400 stores that spread to 25 countries and territories. Indeed, after its expansion across Canada, it stretched into the United States, Europe, and Asia. Much of its growth involves strategic acquisitions and mergers.
According to FactSet data, the blue-chip stock is a dividend contender that has increased its dividend for 17 consecutive years with an extraordinary dividend-growth rate. For example, its five-, 10-, and 15-year dividend-growth rates are approximately 23%, 26%, and 23%, respectively. It continued to raise its dividend at a similar rate of 25% last month. Its payout ratio is still estimated to be low at 15%.
Approximately 75% of its stores offer road transportation fuel, which encourages foot traffic and sales volume. A third of its stores offer fresh food fast for consumers who are tight on time.
The company’s three-year revenue growth rate is 9.9%, while its operating income climbed about 10.4% per year. Ultimately, its adjusted earnings per share increased by approximately 16% in the period.
Couche-Tard is keeping up with industry changes. After several years of experimentation in a Norway lab, Couche-Tard launched its first electric vehicle charger in South Carolina and Quebec in 2022.
A growing network
The company’s sites are about 49% in the United States, 15% in Canada, 21% in Europe and Hong Kong, and 14% in licensed stores internationally. Its mergers and acquisitions (M&A) have worked very well for the company and its long-term investors over the decades. In fact, over 70% of its current network has been sourced from M&A.
Management still sees growth opportunities globally. First, there’s the U.S. market. Although Couche-Tard has a number two market share in the U.S., it only represents about 5% of the convenience stores in the country. Digging further, more than 60% of the stores in the U.S. are operated by single-store operators. So, there lies an immense opportunity to consolidate the U.S. market.
Second, Couche-Tard sees the potential to expand into the attractive markets of Latin America and Southeast Asia. It is looking for a partner with strong management teams to build a platform in these regions.
Furthermore, it’s currently working on acquiring 2,193 locations from TotalEnergies in Europe. It’s also on the lookout for more fitting acquisitions in major markets of Europe.
Investor takeaway
Alimentation Couche-Tard is an expert in consolidating the convenience store industry. It has a strong track record of growing profits and deleveraging its balance sheet after making transformative acquisitions. Over the last decade, it has delivered amazing total returns of 19.9% per year (versus the Canadian stock market, which returned 8% per year). In the period, it also grew its dividend 10-fold.
At under $78 per share at writing, it offers a tiny dividend yield of 0.9%. However, it has a low payout ratio and has a good probability of growing its dividend at an above-average pace with supporting earnings growth. It also trades at a reasonable price-to-earnings ratio of approximately 18. So, it’s a fair buy at current levels.
