There isn’t much range among Canadian retail stocks, though even standard differences like consumer staples and discretionary stocks can be beneficial for investors. That’s because different market forces and factors cause the retail stocks hailing from these two distinct groups to behave differently. Some might be thriving, while others might be bearish.
Then, there are stock-specific factors like acquisitions and changing consumer behaviour patterns in their specific markets that might influence their performance. With all these factors in mind, there are two retail stocks in Canada that you may keep an eye on as we enter the new year.
A local retail giant
Metro (TSX:MRU) is one of Canada’s largest food and medicine retail chains, even though its footprint is limited to two provinces—Quebec and Ontario. Metro has about 980 food stores (multiple brands) and 640 pharmacies.
The company has healthy financials, though it’s not immune to cyclical purchase patterns. However, since the bulk of its business is in necessities—food and medicine—the revenues are relatively safe.
From an investment perspective, Metro’s return dimensions (growth and dividends) are both worth considering, though one is more important than the other.
Metro has been growing its dividends for about 28 years, making it one of the most mature dividend aristocrats in the country. Its payout ratio history is also quite impressive and has remained below 32% for the last decade.
That’s in accordance with the company’s dividend policy of keeping its payouts between 30% and 40% of net earnings. At 1.4%, the yield might not seem as impressive as its dividend history, but that’s tied to its growth potential.
The stock has gone up over 200% in the last decade and if you add the dividends, the overall returns become 267%. Metro will most likely remain an equally impressive stock as we enter another year and a reliable pick, so it’s worth keeping an eye on.
An international retail giant
Alimentation Couche-Tard (TSX:ATD) is another retail giant based in Quebec, but its footprint is massive in comparison. The company has over 16,800 stores around the world and a presence in 31 countries. It’s a convenience store chain heavily anchored by fuel stations.
About 78% of its stores also offer fuel. It recently acquired a significant fuel-related business in Europe and is now eyeing the owner of another massive retail chain (7-Eleven).
The company’s bid for the owner of 7-Eleven hasn’t been met favourably for now, but if it manages to pull through, it will become the largest retail chain in the world, and the global footprint will become even more significant, especially in Asia.
From an investment perspective, Alimentation has been a decent grower and returned almost 280% to its investors in the last decade through price appreciation. It pays dividends as well, but the yield is too insignificant to be an essential variable in this investment decision.
Foolish takeaway
The two large-cap stocks are both worth considering for their growth in any given market. The reasons for keeping an eye on them as we enter 2025 are different. For Metro, it might be a good idea to pick up the stock when it’s a bit more discounted to lock in a more promising yield. As for Alimentation, any positive news about 7-Eleven’s owner’s acquisition might push the stock to new heights, so it’s worth tracking.
