Investors looking at the Canadian stock market have plenty of the more commonly understood dividend stocks to choose from. Whether that’s in sectors such as energy, financials, or REITs, they are the sort of plain vanilla options providing investors with the kinds of yields they expect. I’ve written aplenty about such stocks.
However, in this piece, I thought I’d highlight Alimentation Couche-Tard (TSX:ATD) as a sneaky dividend stock worth considering. The company may not be known for its dividend. But that’s one important attribute of its overall model I think can get missed.
Here’s why Couche-Tard looks like a solid pick from my perspective for those seeking strong total returns over time.
Source: Getty Images
A 1% dividend yield? That’s it?
Yes, Couche-Tard pays a dividend. The growth-by-acquisition convenience store operator is mostly known for its large-scale acquisitions, including a failed bid to buy 7-11 and another massive French retail chain.
In recent years, acquisitions have slowed, though the company is continuously expanding its footprint. From a growth perspective, I still think there’s a lot to this company’s thesis. That’s not likely to change.
But as Couche-Tard matures and its margins remain robust (or expand) over time, I also think there’s the possibility this company could shift to becoming more of a dividend-oriented stock.
And it’s worth noting that one of the key reasons why the company’s dividend is so low is the stock’s performance in recent years. Looking at the chart shown at the top of the article, Couche-Tard has been a winner. I’d take that low yield in exchange for that kind of performance any day of the week.
Can Couche-Tard really grow its dividend?
In my view, the real factor behind whether or not the company’s management team will ultimately decide whether shifting to a dividend-first strategy makes sense is the relative quality of the potential deals out there in the market. Right now, the market appears to be tightening somewhat, and acquisition and financing costs are high.
If Couche-Tard can’t find enough compelling deals to put its excess balance sheet capacity to work on that front, distributing excess funds to shareholders could drive further investment over time. It’s a strategy that has played out among other major mature players in this space. I don’t see why Couche-Tard would be any different.
At a 1.1% current dividend yield, this isn’t a stock I’d put in a passive income portfolio. I’d want to own it for the total return potential Couche-Tard has shown over the long term. I’m just saying the company’s dividend shouldn’t be ignored right now.
