Over the last year, Canadian Tire (TSX:CTC.A) has faced significant operational challenges, which have caused the stock price to fall dramatically. However, as savvy investors know, although times are tough for Canadian Tire right now, these temporary discounts don’t last forever. Therefore, right now looks like the perfect time to buy the stock.
At a current trading price of roughly $126.70, Canadian Tire is down more than 33% from its 52-week high. That’s a significant discount, making Canadian Tire stock look quite appealing, especially for long-term investors who see its significant growth potential.
It’s also essential to consider that this discount is a result of the temporary headwinds Canadian Tire has been facing in recent quarters. So the stock almost certainly won’t be this cheap for much longer.
Plus, in addition to the discount it offers and long-term growth potential it has, one of the number one reasons to buy Canadian Tire stock today is that you can earn a return while you wait for it to inevitably recover.
With Canadian Tire paying an annual dividend of $7 per share, that equates to a yield of roughly 5.5%, a significant return to earn while you wait for one of the best retail stocks on the market to recover.
So with that in mind, let’s look at why Canadian Tire is so cheap, when it could recover, and the potential gains investors can earn by buying the stock today.
Why is Canadian Tire trading so cheaply?
It’s no secret that there’s been a tonne of uncertainty in the economy lately from policymakers all the way down to individual consumers.
Stubborn inflation and higher interest rates have made it harder for consumers to continue spending all their cash, especially on discretionary items. So it’s no surprise that a retail stock like Canadian Tire has been considerably impacted.
In addition, though, unusual seasonal weather has also weighed on the stock. With a much milder winter than normal, the regular demand for winter products and equipment was heavily impacted, resulting in a poor fourth quarter for Canadian Tire.
That said, though, each of these major headwinds should only be temporary. Seasonal impacts are always changing, and over the course of the spring and summer, they could actually help Canadian Tire see significant sales growth.
Furthermore, the economy is expected to recover eventually. Once inflation has come under control and interest rates start to decline again, it’s widely expected to drive discretionary sales, which would be a significant benefit for Canadian Tire.
It’s also important to remember why Canadian Tire is such an excellent long-term stock. Not only is it a massive and well-known retailer across Canada, with several high-quality retail banners in its portfolio, but Canadian Tire also has one of the largest and most impressive loyalty programs in the country.
That loyalty program not only allows Canadian Tire to try and drive higher traffic in its stores but also provides valuable data analytics on its customers, which it can use to improve its merchandising and ultimately drive organic growth.
Therefore, while this high-quality stock with impressive long-term growth potential trades so cheaply, it’s certainly one of the best stocks you can buy today.
The 5.5% dividend is both significant and safe
When stocks fall in price, naturally, the dividend yield rises, allowing investors to lock in that higher yield when they buy the stock. However, when companies fall in price, it’s usually because their operations have been impacted. So, it’s essential to ensure that the attractive dividend yield is still sustainable.
In Canadian Tire’s case, not only is a dividend yield of more than 5.5% attractive, but it also appears considerably safe. In fact, over the last year, Canadian Tire stock’s earnings per share (EPS) have fallen drastically, from $18.75 in 2022 to $10.37 in 2023. Yet even after that significant decline, its $7 annual dividend per share appears safe.
Not only that, but going forward, analysts expect Canadian Tire to begin to recover. For example, in 2024 and 2025, Canadian Tire is expected to earn normalized EPS of $11.61 and $14.68, respectively.
Therefore, with a safe dividend and now a yield that’s considerably higher than its average of 3.6% over the last five years, Canadian Tire is certainly one of the best stocks to buy now.
