Before we get into this, what exactly does a smart stock even mean? While there really is no definition, we can certainly come up with a few ideas.
In this case, we’ll be looking at whether investing in stocks that exhibit strong fundamentals, consistent performance, and resilience during economic downturns is the key to building a robust investment portfolio.
If this is true, then Superior Plus (TSX: SPB) and Pizza Pizza Royalty (TSX: PZA) are prime examples of smart stocks. Both companies demonstrate the characteristics of smart investments that are well-suited for holding forever.
Superior Plus
Superior Plus is an energy operator across multiple segments, including U.S. Propane, Canadian Propane, Wholesale Propane, and Certarus. Propane and natural gas are essential energy sources used in residential, commercial, utility, agricultural, and industrial sectors. Demand for these services remains relatively stable even during economic downturns, providing a steady revenue base. Superior Plus has shown adaptability by maintaining strong performance despite challenging weather patterns and economic conditions.
Now for the details. Superior Plus reported a record first-quarter 2024, including adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $235.6 million. This was a 15% increase from the prior year, indicating strong operational performance and effective cost management. The substantial increase in gross profit also reflects improved margins and efficiency.
The company also has a history of consistent dividend payments, with a whopping 9% dividend yield at $0.72 per share annually. The strong performance in key segments like Certarus, which achieved a record quarter with Adjusted EBITDA of $51.5 million, shows growth potential. And the ongoing investment in expanding services and deploying new mobile storage units (MSUs) indicates future growth. Altogether, Superior Plus’s strategic focus on organic growth through self-funded reinvestment positions it well for long-term success.
Pizza Pizza
Now for everyone’s favourite Canadian pizza company. Pizza Pizza earns royalties based on a percentage of sales from its Pizza Pizza and Pizza 73 restaurants. With a total debt-to-total capital ratio of 15.6%, it has a strong balance sheet with manageable debt levels. What’s more, the company maintains a working capital reserve to stabilize dividends and fund expenditures in the event of short- to medium-term variability in sales.
Pizza Pizza also boasts a net profit margin of 77.8%, significantly higher than the industry average. High profit margins indicate efficient operations and strong cost control, which are crucial during economic downturns. The company has shown consistent growth in adjusted earnings per share (EPS), demonstrating its ability to maintain profitability even during challenging times.
Then there’s the dividend. Pizza Pizza has a history of regular dividend payments. For Q1 2024, the company increased its dividend, now at $0.93 annually with a yield of 6.8%. Despite economic challenges, it has managed to increase its dividend payouts, reflecting strong cash flow management and commitment to returning value to shareholders. With a payout ratio of 92.5% in Q1 2024, it aims to distribute most available cash to maximize shareholder returns.
Broadly speaking, the food industry, particularly quick-service restaurants like Pizza Pizza, provides essential goods that tend to have stable demand even during economic downturns. Pizza Pizza and Pizza 73 are well-established brands in Canada with strong customer loyalty. The company’s focus on operational excellence, menu innovation, and technology enhancements positions it well to attract customers and drive sales, regardless of economic conditions.
Bottom line
Superior Plus and Pizza Pizza Royalty are smart investments for long-term holding for a number of reasons. Whether it’s due to their diversified revenue streams or resilient business models, they deliver strong financial performance and consistent dividend payments. Both companies are well-positioned to navigate economic downturns and continue delivering value to shareholders, making them ideal candidates for a “buy-and-hold forever” investment strategy.
