Before I get too far into this, I have to first state that overall, Dollarama (TSX:DOL) is an incredible long-term hold. This retail stock has proven time and time again that customers come back for more. And it’s a financially strong company with a proven track record of using its cash wisely, investing in Latin America through Dollar City and now Australia through the Reject Shop.
But the problem? These details have been priced into the current share price, so you’re not getting any kind of a deal. What’s more, dividends are a priority. That’s why today we’re going to look at two other stocks to consider, ones that offer a deal and dividends. Those dividend stocks are TFI International (TSX:TFII) and Alimentation Couche-Tard (TSX:ATD).
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Diversification
When it comes to diversification, both of these stocks shine. TFII is a leader in transportation and logistics, boasting diversification through multiple business segments that withstand market fluctuations. Despite a recent decrease in revenue, which was attributed to weaker market demand. Meanwhile, it continued to display solid free cash flow (FCF), showing resilience when times get tough. And it uses that cash flow to expand and diversify further.
Then there’s ATD, with diversification built in through its network of convenience stores on a global scale. It offers exposure to both retail and energy sectors as well. The dividend stock’s strategy remains strategic acquisitions, such as GetGo Café + Market, combined with efficient cost management and a share repurchase program. This sets it up for sustained and diversified growth.
Growth
So let’s dig in deeper to that growth, because both of these dividend stocks have demonstrated improving financial performance and strategic growth. TFII offers a forward price-to-earnings (P/E) ratio that suggests undervaluation compared to its trailing P/E. Especially considering the expected earnings growth that could provide even higher returns in the future. And the dividend stock has succeeded in this, maintaining a strong balance sheet while still making strategic acquisitions.
Digging into recent earnings, ATD has also seen growth, reporting an increase in merchandise and service revenues. This was reported alongside positive same-store sales, showing the dividend stock remains resilient even amidst inflationary pressures. While it still supports disciplined cost control, the dividend stock continues to expand, buy back shares, and increase its dividend.
Dividend
So what about that dividend? TFII and ATD both offer it up for investors, with TFII holding the higher of the two at 1.9%. That’s still higher than Dollarama’s 0.23% as of writing. TFII stands as an attractive option, therefore, for income seekers, with lower valuation metrics. It’s therefore an appealing opportunity for value investors who want in on long-term income and returns.
As for ATD, the short-term earnings fluctuations from strategic investments haven’t diminished its robust cash flow position. This has allowed for continued investment in growth opportunities and a strong dividend policy. Its share repurchase program also shows confidence in the company’s future, and therefore its dividends.
Bottom line
Yes, Dollarama stock is a strong investment with robust growth and profitability. However, it holds a high valuation with a forward P/E far above the market average and a low dividend yield. On the other hand, TFII and ATD offer a stable balance of growth, income, and value. So if you’re looking for income and returns, these two dividend stocks might be the ones to consider on the TSX today.
