Shares of Canadian Tire (TSX: CTC.A) recently fell into another correction despite reporting some first-quarter numbers that I thought were not bad at all. Indeed, sometimes the market expects a bit more. And with the uncertain state of the Canadian consumer, I do understand why some investors out there would rather hit the sell button and buy back later, especially considering the retailer hasn’t exactly been the timeliest of plays on the TSX Index of late.
Add inflationary pressures that could worsen with higher oil prices, and perhaps it’s not a bad idea to take a rain check on a name like Canadian Tire.
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Canadian Tire’s rally is faltering
It’s not exactly a quick gainer, after all. Though I like how Canadian Tire is running things, especially as it rolls out its exclusive brands (think HBC and more), the consumer discretionary scene remains a tough place to be, especially if the winds of stagflation are starting to blow in.
Of late, consumers want more value for money. And that probably won’t change just because inflationary pressures become more severe going into the second half. The good news is that Canadian Tire can provide value. Though, it might not do a whole lot as consumers put off big-ticket expenditures on goods that are non-essential.
When you’ve got a huge grocery bill, it’s hard to save up enough cash to splurge on that new espresso machine or that patio furniture. Any way you look at it, I think the headwinds weighing on CTC.A stock probably won’t last forever.
Why I’d stay the course with the dividend growth gem
Though, I do think the name could stay stuck for a little while longer. As the firm looks to automate its way to savings while looking to pass more value to consumers, I think the company is positioned to boom once the worst of inflation comes to pass. I guess the big question is how the Canadian consumer will look on the other side of the latest challenges.
In any case, Canadian Tire will be there to profit from any demand for big-ticket goods that has been “pushed out” to some time into the future. Whether it takes a few more months or a year or so to save up for the big splurge, Canadian Tire will be ready when consumers are finally ready to open up their wallets again.
For now, shares go for 14.5 times trailing price-to-earnings (P/E). That’s a dirt-cheap multiple, especially for a stock with a growing 4.1% dividend yield. Though the wait for Canadian Tire’s turnaround could take a while, you’re going to be paid quite handsomely to wait.
It might be a bit discouraging to have shares of CTC.A left behind as the TSX Index continues marching ahead. But Canadian Tire is a cherished brand that will have its moment again.
The consumer discretionaries can be tough to own, and it can be tough to get the timing right. But whenever the dividend is so rich, it pays to just hang on for the ride, regardless of when one expects consumer spending to boom again.
