A Solid Dividend Stock Down 37% to Buy Before It Bounces Back

Groupe Dynamite stock is down 38% from its high, yet sales and profits are surging. See why this almost 3.8% dividend yield may be worth a closer look now.

Key Points
  • Groupe Dynamite shares sit about 38% below their high, even as sales grew 29.8% and guidance moved higher.
  • The almost 3.8% yield looks supported by strong free cash flow and low debt, though the payout near 81% of earnings leaves less room for error.
  • Canada, tougher comparisons, and fading tariff benefits are the main risks, so the bounce depends on U.S. and U.K. growth continuing.

Valued at a market cap of $6.5 billion, Groupe Dynamite (TSX: GRGD) stock is down almost 40% from all-time highs. However, the ongoing pullback has raised the trailing dividend yield for the TSX stock to 3.8%.

The company just posted a blowout quarter and raised its outlook. So, is the beaten-down Canadian dividend stock a good buy right now?

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Source: Getty Images

Why is Groupe Dynamite stock down in 2026?

Groupe Dynamite is a Mount Royal women’s apparel retailer founded in 1975. It sells through Garage and Dynamite stores and websites in Canada, the United States, and the United Kingdom.

Over the past six years, management has worked to make Garage and Dynamite feel more premium. The focus shifted towards better products, better store locations, and a more polished brand.

Garage used to be known for denim and casual wear. Today it focuses on activewear and lifestyle clothing. CEO Andrew Lutfy said on the September 10 earnings call that the average price per item has roughly doubled since 2019.

In Q2 2026, sales rose 29.8% to $423.6 million. U.S. sales rose 52.2% to $271.6 million, while online revenue grew 31.5% year over year. Comparable store sales, which exclude new stores, rose 10.3%. The company reported a gross margin of 68.8% in Q2, up from 56.6% in fiscal 2022 (ended in January).

The adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin grew to 44.3%, the highest the company has reported under international accounting rules.

Adjusted earnings per share climbed to $0.96 from $0.57 over the last four quarters. Management said more than half of the 520 basis point jump in gross margin was tied to tariff refunds.

So how does a clothing retailer grow profitability amid a challenging macro environment?

Lutfy points to inventory and stated:

In fashion, having too much of the wrong product is far more expensive than occasionally having too little of the right product.

About 95% of gross sales were sold at full price, while inventory turned 7.7 times in the quarter, up from 7.3 times a year ago.

Is the 3.8% dividend yield safe?

It’s essential to note that Groupe Dynamite does not operate on a standard fixed-interval payout routine, which makes distributions appear intermittent or sparse.

Its dividend history shows irregular or special distributions rather than a fixed quarterly schedule. The company last declared and paid a dividend of $2.30 in late December 2025, which translates to a trailing yield of 3.9%.

The annual dividend expense is around $250 million, while the fiscal 2027 free cash flow is projected at $333 million, which indicates a payout ratio of 75%. The high payout ratio leaves little room for the company to lower balance sheet debt or raise the dividend.

Canadian sales have also been impacted due to slower spending and store closures. In fiscal Q2, revenue was down almost 2% with 13 fewer stores.

Casual wear like denim and woven shirts once made up about 70% of sales, according to Lutfy. This segment now accounts for 15% of sales.

Management expects second-half comparable sales growth of 9.5% to 13% against two of its best quarters ever. Margin gains should decelerate over the next 12 months, and rising fuel costs will impact near-term profitability. Management says both are already built into its guidance.

Management raised revenue growth guidance to 25% to 27% and lifted comparable sales guidance to 12% to 14% and adjusted EBITDA margin to 39.5% to 40.5%. It plans 24 to 26 store openings this fiscal year and 350 stores by the end of 2028.

Analysts tracking the TSX dividend stock forecast earnings to expand from $2.25 per share in fiscal 2026 to $4.42 per share in fiscal 2029.

If the retail stock is priced at 17 times forward earnings, it could surge 25% over the next 15 months. If we adjust for dividends, cumulative returns could be closer to 30%.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Groupe Dynamite. The Motley Fool has a disclosure policy.

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