Donald Trump’s proposed tariffs have sparked fresh fears of an economic downturn, with investors bracing for potential disruptions to global trade. Historically, protectionist policies can lead to higher costs for businesses, reduced consumer spending, and, ultimately, a slowdown in economic growth. While some sectors may bear the brunt of these changes, others, like the grocery industry, remain resilient. That’s where Metro (TSX:MRU) comes into play: a Canadian stock that offers both stability and consistent returns, even in uncertain times.
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Think essential
Tariffs have a way of trickling down to everyday consumers. Increased costs on imported goods can lead to inflation, forcing businesses to either absorb higher expenses or pass them on to customers. In either scenario, discretionary spending tends to decline as households adjust their budgets to accommodate higher prices. However, no matter how the economy shifts, one thing remains constant. People need to buy groceries. This reality makes defensive stocks like Metro an essential component of any recession-proof portfolio.
Metro is a leading Canadian grocery and pharmacy retailer, with over 950 food stores and 650 pharmacies under well-known banners such as Metro, Super C, Food Basics, Jean Coutu, and Brunet. Its dual focus on food and pharmaceuticals ensures a steady revenue stream, as both sectors are necessities for consumers. Even during economic downturns, people prioritize food and medication over non-essential purchases, making Metro one of the most resilient companies on the TSX.
Into earnings
The Canadian stock’s latest earnings reinforce this strength. For the first quarter of fiscal 2025, Metro reported sales of $5.1 billion, reflecting a 2.9% year-over-year increase. While food sales grew modestly at 1%, adjusting for a calendar shift pushes that figure to 2.4% — a reassuring sign of steady demand. The pharmacy segment, however, continues to outperform, with 5.1% same-store sales growth, driven by an increase in prescription drug sales and higher in-store traffic. These numbers highlight Metro’s ability to sustain growth, even in a challenging macroeconomic environment.
Another reason investors flock to Metro is its commitment to returning capital to shareholders. The Canadian stock recently raised its dividend by 10.4%, bringing its quarterly payout to $0.37 per share. With a five-year average dividend yield of 1.53% and a manageable payout ratio of 31.17%, Metro has ample room to continue increasing dividends in the future. For long-term investors, this makes Metro not just a defensive play but also a source of reliable passive income — an attractive feature in volatile markets.
Future outlook
Looking at Metro’s stock performance, the Canadian stock has demonstrated remarkable resilience compared to the broader market. Over the past year, the stock has gained 30%. It’s trading at $93.23 per share as of writing, with a 52-week high of $94.86 and a low of $68.12. With a price-to-earnings (P/E) ratio of 21.26 at writing, Metro remains fairly valued relative to its historical range.
So, how does Metro stack up against its competitors? Compared to Loblaw Companies (TSX:L) and Empire Company (TSX:EMP.A), Metro offers a balanced mix of growth, profitability, and defensive qualities. While Loblaw has a larger footprint and higher overall revenue, Metro operates with higher profit margins at 4.36% and a more focused business model. Empire, however, has been expanding aggressively through acquisitions like Longo’s and Farm Boy. Yet Metro remains the more stable, dividend-friendly choice. For investors seeking a balance between growth and reliability, Metro stands out as a compelling option.
Bottom line
Ultimately, for investors concerned about the broader market’s reaction to Trump’s tariffs, Metro offers a safe haven. Its essential business model ensures steady demand, while its financial discipline and dividend growth provide long-term value. Whether a recession materializes or not, Metro remains a reliable anchor in any well-diversified portfolio. In times of uncertainty, defensive stocks like Metro prove that sometimes, the best investment strategy is simply sticking with what people will always need: groceries and medicine.
