Investing in quality companies with strong fundamentals and the ability to thrive across business cycles should help you derive game-changing wealth over time. In this article, I have identified two such top TSX stocks that could help set you up for life. Let’s dive deeper.
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Pet Valu stock
Valued at $1.82 billion by market cap, Pet Valu (TSX:PET) has trailed the broader markets since its IPO (initial public offering) three years back. Down 40% from all-time highs, Pet Valu trades at a cheap valuation and offers investors a dividend yield of 1.7%, given an annual dividend payout of $0.44 per share.
Pet Valu is part of a recession-resistant pet food industry and ended the first quarter (Q1) of 2024 with system-wide sales of $353 million, up 3.9% year over year. Its revenue rose 4.2% to $261 million, while adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) increased 16% to $56.6 million, indicating a margin of 21.7%.
Pet Valu reported an adjusted net income of $25.3 million, or $0.35 per share in Q1, up from $23 million or $0.32 per share in the year-ago period. It opened 11 new stores and ended Q1 with 794 stores across the network.
Pet Value reported a free cash flow of $23.1 million in Q1, compared to an outflow of $16.7 million last year. It paid around $8 million to shareholders via dividends, indicating a payout ratio of less than 33%.
Priced at 14.2 times forward earnings, Pet Valu stock is quite cheap and trades at a discount of 50% to consensus price target estimates.
Dollarama stock
While Pet Valu has trailed the market, Dollarama (TSX:DOL) has delivered outsized returns to shareholders. Since its IPO in October 2009, Dollarama stock has surged close to 4,000% and still trades at a reasonable multiple.
Dollarama’s sales rose by 8.6% year over year to $1.4 billion in fiscal Q1 of 2025 (ended in April). While its EBITDA increased by 14% to $417.7 million, operating income rose 16% to $322 million.
Amid a challenging macro backdrop, Dollarama has focused on improving product margins through pricing strategies and inventory shrinkage.
Dollarama’s growth story is far from over, given it opened 18 net new stores in Q1. Last month, Dollarama announced the acquisition of an additional 10% equity interest in Dollarcity, a Latin American value retailer. Now, Dollarama owns a 60.1% equity interest in Dollaracitiy with an option to purchase an additional 9.9% equity interest by December 2027.
At the end of March 2024, Dollarcity had 547 stores with 324 locations in Colombia, 99 in Guatemala, 72 in El Salvador, and 52 in Peru. Dollaracity expects to increase its store count to 1,050 by 2031 and should be a key driver of the Canadian giant’s top-line growth.
Priced at 31.5 times forward earnings, Dollarama stock might seem expensive. However, analysts expect it to expand earnings by 14.4% annually in the next five years.
In addition to capital gains, Dollarama pays shareholders a quarterly dividend of $0.092 per share, indicating a yield of just 0.30%. However, these payouts have more than tripled in the last eight years.
