As the broad TSX Index rally looks to add to its strength for the summer, contrarian value investors may wish to give some of the grounded names a second look. Indeed, under the surface of a hot index are some pretty compelling dividend stocks, many of which might have been bid down for no good reason. Undoubtedly, exhausted stocks falling into a bit of a correction are incredibly compelling for long-term thinkers looking to pay three quarters and a nickel to get a full dollar, so to speak.
And while value may be harder to come by as growth hopes and secular AI tailwinds take control, I still think that those modest discounts are still more than worth pursuing, especially if we’re talking about a name that has been weighed down by near-term noise, rather than anything that’s actually a detriment to the fundamentals.
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North West Company stock is down, but it’s certainly not out of the game
In this piece, we’ll check in on a Canadian dividend payer and grower that’s corrected and could be in a spot to make up for lost time in the second half of the year and beyond. Enter shares of North West Company (TSX:NWC), a lesser-known $2.3 billion retailer that’s currently off just over 14% from its all-time high.
Undoubtedly, the shares have been nothing short of choppy in these past two years, falling into a correction on three separate occasions. Despite the choppiness, the beta sits at 0.50, making it far less correlated to the rest of the Canadian stock market. When the TSX Index gets overheated, and energy as well as financials start running a bit out of steam, a name like NWC might pay dividends for the defensive side of the portfolio.
Any way you look at it, the defensive dividend payer is going through a rather wide consolidation channel, with the $56–58 level acting as quite a tough ceiling of resistance for the shares to crack. As shares hover closer to the support levels, I do think there’s an opportunity to pick up the well-run grocery-heavy retail play at a reasonable price of admission. Today, the stock goes for just under 17 times trailing price-to-earnings (P/E).
Given that North West tends to serve quite a chunk of the remote, underserved communities out there, higher transport costs have weighed in. Indeed, higher oil means a big pressure point on margins. As oil comes in again, as it already has, and the company pursues a margin-expansion plan that involves doubling down on private labels while unlocking efficiencies behind the scenes, I do think shares of NWC could be in for a swift comeback.
The Foolish bottom line
The 3.4% dividend yield might not seem towering, but as the firm gets back on the right track while the macro picture changes, I like the setup for the shares over the next two to four years. In my view, there’s a plan in place and a solid management team that can get the job done.
