December is usually a great time in the market. The anticipated Santa Claus Rally aside, this month wraps up what has been an incredibly volatile year. And now, more than ever, there’s a great opportunity to pick up some favourite TSX retail stocks.
Here’s a look at several that I’m considering buying, and you should, too.
Defensive all year, and a star in December
When it comes to retail stocks, I would be remiss if I didn’t mention Dollarama (TSX:DOL). Dollarama is the largest dollar store retailer in Canada, with a growing presence that extends across the country to every province.
As of the most recent quarter, Dollarama’s network comprises over 1,500 stores in Canada. Few investors may realize this, but Dollarama also has a growing presence in Central America under the Dollar City banner. That international presence now extends to 480 stores across four countries.
Turning to results, the most recent quarter saw Dollarama increase sales by 14.6% to $1,477.7 million. Increased comparable sales, as well as a larger number of stores, were the primary drivers behind that growth.
So, then, what makes Dollarama one of my favourite TSX stocks to own now? That comes down to two key reasons.
First, we have Dollarama’s unique pricing system. Dollarama prices items across fixed points up to $5. This makes purchases predictable as there’s less sticker shock. Additionally, Dollarama is known to bundle several lower-price items together, further enhancing the value appeal.
That approach has kept traffic flowing to its stores and helped Dollarama during earnings season. In the most recent quarter, Dollarama earned $261.1 million, or $0.902 per diluted share, during the most recent quarter. By way of comparison, in the same period last year, Dollarama earned $201.6 million, or $0.70 per diluted share.
Second, we have the defensive appeal of Dollarama. When budgets are stretched, consumers will trade down to less expensive retailers to purchase goods. That’s partly why Dollarama’s stock price has surged over 15% year to date.
Finally, prospective investors should note that Dollarama has taken an aggressive stance on growth. The company is committed to growing its domestic store network to 2,000 stores within the next seven years. Dollarama is also looking to expand its international business to 850 stores by fiscal 2029.
Invest in one of Canada’s best-known retailers
There are few, if any Canadians that could argue about the prominence of Canadian Tire (TSX:CTC.A). Most of us can recall a trip or three to the “tire” to pick up items for the car or home. And it’s that convenience and wide product selection that helps to make Canadian Tire one of my favourite TSX retail stocks right now.
Like most retailers, Canadian Tire isn’t immune to the high-interest market that we are in. In fact, during the most recent quarterly update, the company noted it would be reducing its employee headcount by 3%. Those cost-cutting measures are expected to save Canadian Tire $50 million.
Year to date, Canadian Tire trades up just shy of 5%, which makes it a unique time to pick up a great stock. Even better, prospective investors can earn an impressive dividend income.
As of the time of writing, Canadian Tire pays out a whopping $7 per share, which works out to a yield of 4.94%. The company has also provided an annual uptick to that dividend for a solid 14 consecutive years without fail.
One final point to note is that Canadian Tire has expanded its core operation in recent years. The company has moved beyond its namesake stores and now operates an impressive portfolio of well-known retail brands with in-store and online storefronts. This includes SportChek, Mark’s, Party City, Helly Hansen, and several others.
In other words, Canadian Tire is a well-established, diversified retailer that pays out a handsome dividend.
No investment is without some risk. That statement is especially true when considering the volatile year we’re still in. Fortunately, both Dollarama and Canadian Tire provide some defensive appeal and significant growth potential.
In my opinion, one or both should be part of a well-diversified portfolio.