Dividends are always a welcomed addition to an investor’s income stream. A portfolio of stocks that pays out reliable dividends can make a significant difference in retirement, wealth accumulation, and managing basic everyday expenses. Metro Inc. (TSX:MRU) currently has a dividend yield of 1.6%. It’s not a windfall, but regardless, Metro stock may be well worth buying for its dividend.
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Metro’s dividend supported by a reliable business
As a leading food and pharmacy retailer in Canada, with more than 600 food stores and more than 650 drugstores, Metro’s business is pretty much insensitive to the ups and downs of the economy. This has translated into a strong, solid business that has grown reliably over the last many years.
In fact, this $19 billion company is armed with a strong balance sheet and strong cash flows. With more than 990 grocery stores and 640 drugstores, Metro has continued to grow its footprint and as a result, its revenue and profitability. Over the last five years, Metro’s revenue has increased 24% to more than $20 billion in 2023. Also, the company’s operating cash flow has increased 97% to $1.6 billion in the same time period.
This has supported reliable and increasing dividend payments. In the last 10 years, Metro’s annual dividend per share has increased 240% to the current $1.36. This represents a five-year compound annual growth rate of almost 28%.
Metro stock – looking ahead
As part of Metro’s success story, the company has had a relentless focus on driving efficiencies and profitability. This has resulted in a significant increase in its profit margins. For example, Metro’s operating profit margin increased from 6.1% in 2019 to almost 7% in 2023. Also, its net margin increased from 4.2% in 2019 to 4.9% in 2023.
Looking ahead, this drive for greater efficiencies will continue. In fact, a new automated fresh and frozen facility in Terrebonne, Quebec, is now fully operational. This 600,000 square foot facility features state of the art technology, which will allow Metro to make significant efficiency gains. We can expect this and other similar actions by Metro’s management to continue to drive up margins and shareholder returns.
On the revenue side, food inflation has settled to more reasonable levels. While many still struggle with the high cost of food, there is an opportunity for Metro to gain additional business by reducing prices at some point. This could very well be a win-win proposition for both shoppers and Metro.
Metro stock shines
Metro’s stock price has performed exceptionally well over the last three years – up 32% over this time period. This is an impressive performance for any stock, but especially for a slower growth, defensive stock like Metro.
The stock trades at a trailing price to earnings multiple of 20 times. This is far below Loblaw’s P/E multiple despite the fact that Metro’s business is generating significantly higher profit margins.
The bottom line
Metro’s consistent drive for greater efficiencies continues to drive margins. The most recent investments into the new facility in Quebec speak to the company’s dedication to this. As we head into the next years, I think we can expect continued margin gains, and ultimately gains in Metro’s stock price.
