Canadian Tire (TSX:CTC.A) is one of Canada’s most iconic retailers, but with 2025 approaching, investors may be wondering if it’s a good time to buy, sell, or hold. Over the past decade, Canadian Tire stock has delivered an annualized return of about 5%, outperforming inflation but underperforming the Canadian stock market, which averaged nearly 9%. Is this stock a steady performer or a hidden gem? Let’s dive deeper.
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Stock performance: A rollercoaster ride
While Canadian Tire’s decade-long returns may seem moderate, they have been anything but predictable. Over the years, the stock has experienced significant fluctuations, providing savvy investors with opportunities to capitalize on market swings. A notable example of this volatility occurred during the 2020 pandemic market crash when Canadian Tire stock plunged by more than 40% from peak to trough. For those who managed to time the market perfectly, the recovery could have delivered a return of up to 2.6 times their initial investment!
The main driver of this volatility lies in Canadian Tire’s business model. As a retailer selling consumer discretionary goods across categories such as automotive, hardware, sports and houseware, the company’s fortunes are closely tied to the health of the economy. When the economy struggles, investors often worry that discretionary spending will fall, affecting Canadian Tire’s sales and profits.
However, Canadian Tire’s performance during the pandemic was unexpectedly strong. In 2020, it managed to grow revenues by 2% and limit its earnings per share (EPS) decline to just 2%. In contrast, during the global financial crisis of 2008–2009, the company’s EPS fell more meaningfully – 10% and 11%, respectively, but was still resilient in that period of economic stress.
Resilient earnings and dividend growth
One of Canadian Tire’s most attractive qualities is its ability to rebound quickly from downturns. After the 2008–2009 recession, the company’s earnings recovered by 2010, signalling strong management and a well-structured business model. This resilience has contributed to Canadian Tire’s impressive dividend history.
The company is a Canadian Dividend Aristocrat, with a track record of 14 consecutive years of dividend growth. Its dividend growth rates have averaged 14.2% over the last three years, 11% over the last five years, and 14.1% over the last 10 years. However, the most recent dividend increase was a modest 1.4%, indicating that it’s facing challenges.
At a current price of $153.71 per share, Canadian Tire offers a decent dividend yield of 4.6%. This yield is supported by a payout ratio of approximately 55% of adjusted earnings, making it a potential choice for income investors.
The Foolish investor takeaway
At its current valuation, Canadian Tire stock appears fairly priced, with its price-to-earnings (P/E) ratio aligning with its historical averages. Earnings growth is projected to be in the range of 5–7% per year over the next couple of years. Based on these factors, investors can reasonably expect total returns of around 9.6% annually, assuming no major market downturns.
In conclusion, Canadian Tire seems like a “hold” heading into 2025. While the stock’s performance may not dramatically outpace the broader market, its stability, resilient earnings, and decent dividend yield make it a potential option for long-term investors looking for steady growth and income. If you’re holding Canadian Tire in your portfolio, it’s likely worth keeping it for the time being.
