Is Loblaw Stock a Buy for its 1.2% Dividend Yield?

Loblaw (TSX:L) stock still looks cheap despite its promising rally over the past year.

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Shares of Canadian grocery firm Loblaw (TSX:L) have been faring well for investors over the past few years. Indeed, the $54 billion defensive firm has quietly beaten the broader TSX Index by a handsome margin of late, surging more than 142% in the past five years. Loblaw stock’s incredible run proves that you don’t need to invest in red-hot generative artificial intelligence (gen AI) stocks to make a solid return over time.

Of course, much of Loblaw’s outperformance can be attributed to management’s smart moves. And though they have many growth drivers to pull to keep the rally going strong for many quarters (or even years) to come, questions linger as to where customers will head to now that inflation has been tamed and interest rates are headed lower in the coming year.

Indeed, Loblaw’s private label brands, most notably No Name and President’s Choice, have been tasty offerings to save a few bucks on one’s weekly grocery runs.

Loblaw’s New No-Name Stores Could Drive Growth

As Loblaw looks to double-down on its private-label offerings, with its biggest move yet by opening up No Name stores to help Canadians maximize their potential savings on food and other necessities, perhaps there’s an opportunity to take additional share in the grocery scene. Of course, it’s tough to tell just how well the new line of No Name discount stores will fare as Canadians move on from the inflationary environment. Just because inflation is normalizing doesn’t mean the appetite for deals is about to return to pre-pandemic levels.

Arguably, demand for great deals could continue to be the name of the game for retailers looking to thrive over rivals. At this juncture, it’s not all too clear what the new No Name retail locations have over its existing No Frills stores. Only time will tell if the new low-cost, high-value No Name stores will boost sales and margins. I think it’s a smart time to take the No Name ball and run with it into the endzone.

Many Canadians who’ve grown up with the No Name brand know the savings to be had by trading down to it from a pricier brand name. And with the No Name commercials jolting brand awareness, perhaps No Name could become a go-to option for Canadians, even those who have no need to cut into their spending budgets.

Personally, I think No Name stores may just give dollar stores a good run for their money. Either way, Loblaw seems like a force to be reckoned with as value stays at the top of many Canadian consumers’ minds going into the new year. Even if No Name can’t stack up with discount store rivals, it’s encouraging that Loblaw is willing to explore new concepts to drive growth.

The Dividend May Be Small, But it Looks Growthy

Sure, L stock’s dividend is lacking at 1.2%. However, as Loblaw continues making all the right moves, I expect its dividend to grow at an above-average rate over time. So, if you’re looking for a top-tier dividend grower that can stay resilient in nasty economic storms, perhaps L stock is a great buy right here while it’s going for 26.8 times trailing price-to-earnings (P/E).

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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