When you’re looking for stability in the stock market, grocery stocks tend to stand out. They don’t always shoot to the moon, but they offer something many investors are after right now: reliability. With inflation staying stubborn and Canadians increasingly worried about day-to-day expenses, grocery stores continue to be essential. Two top contenders on the TSX are Loblaw Companies (TSX: L) and Metro (TSX: MRU). Both have strong track records, but which one is the better buy today?
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The basics
Loblaw is the biggest food retailer in Canada. It owns household names like Loblaws, Real Canadian Superstore, No Frills, and Shoppers Drug Mart. That last one gives it something Metro doesn’t have: access to the healthcare sector. This diversity helps it bring in revenue from more than just groceries. As of its most recent data, Loblaw’s market cap is around $66.2 billion. Its share price has risen about 43% in the last 12 months. As of now, it trades around $222 and pays a dividend yield of about 1%.
Metro is smaller but mighty. It mostly operates in Quebec and Ontario through Metro, Super C, and Food Basics. It also owns the Jean Coutu pharmacy chain, giving it exposure to healthcare as well. Its market cap sits around $22.7 billion, with shares trading around $104. MRU offers a higher dividend yield at 1.4% and has also posted stable growth, up about 42% over the last year.
Into earnings
The most recent earnings reports offer more clarity. Loblaw reported revenue of $13.6 billion in the first quarter of 2024, up from $13 billion the year before. Net earnings rose to $459 million from $418 million. This came from growth across its food and drug retail segments. The Canadian stock also announced a dividend increase of 15%, showing confidence in its cash flow.
Metro’s latest earnings report was also steady. For its fiscal Q2 2024, revenue hit $4.9 billion, a 6.5% increase from the year before. Net income came in at $228.4 million, or $1.02 per share, compared to $218.8 million and $0.94 per share a year earlier. It raised its quarterly dividend by 10%, showing that management is focused on returning value to shareholders. Metro also completed some store renovations and launched more private label products, helping boost margins.
Valuations
In terms of valuation, both Canadian stocks are fairly priced. Loblaw trades at a price-to-earnings ratio of around 31, while Metro trades slightly lower at 23. That makes Metro the more affordable choice based on earnings. Loblaw, on the other hand, has more diversification in its business and tends to perform well even during economic shifts.
One thing investors like about both companies is their ability to manage inflation. Grocery stores pass on higher costs to customers, but Loblaw and Metro have also leaned into discount banners. This helps attract shoppers during tough times. With concerns about inflation, tariffs, and recession risks all rising, Canadians are looking for ways to cut costs. These grocers are positioned to benefit from that shift in consumer behaviour.
Bottom line
So which stock is the better buy right now? If you’re focused on long-term stability and like the idea of a Canadian stock with exposure to healthcare, financial services, and discount grocery, Loblaw has the edge. It’s a giant with many levers to pull. But if you’re after a higher dividend yield and slightly better value, Metro offers a solid return profile with less volatility.
Both Canadian stocks are strong and have shown they can grow dividends and revenue even in tough markets. Whether you lean toward Metro or Loblaw, you’re buying into a business that Canadians rely on every single day.
