Canadian Tire has offered our investors so much more than hammers and nails. The stock’s up over 1,107.3% since we first recommended it in The Successful Investor in April 1995.
A $3.4 billion long-term growth plan that includes store, online business and private-label brand upgrades should help sustain this momentum and provide a basis for further long-term gains.
The current 4.1% dividend yield is just as impressive as the share price gains when you consider just how inexpensive the shares are right now.
[ofie_ad]
They trade at just 10.6 times its 2023 forecast earnings.
CANADIAN TIRE CORP. (Toronto symbol CTC.A; www.canadiantire.ca) is a top pick for 2023.
Investors benefit from the company’s 504 Canadian Tire stores. They sell automotive parts and services, and household and sporting goods; franchisees run most of the locations. The company’s other operations also enrich its outlook. They include 161 stores operating under the PartSource (auto parts) and Party City (party supplies) banners.
Canadian Tire has several other major retail chains: Mark’s sells casual and work clothing through 379 stores; and the Sport Chek Group sells sporting goods and athletic wear through 372 outlets, including Sport Chek and Sports Experts.
With the March 2023 payment, Canadian Tire raised your quarterly dividend by 6.2%. Shareholders now receive $1.725 a share instead of $1.625. The new annual rate of $6.90 yields a high 4.1%. With this increase, the company has now raised that payment each year for the past 13 years. It also aims to buy back between $500 million and $700 million of its shares by the end of 2023.
Value Stocks: Revenue and earnings are enhanced by Canadian Tire’s e-commerce gains
Canadian Tire’s revenue rose 3.4%, from $14.06 billion in 2018 to $14.53 billion in 2019. In 2020, revenue growth slowed as the pandemic took hold, rising just 2.3% to $14.87 billion. Revenue then jumped 9.6% to $16.29 billion in 2021 as the economy re-opened. In 2022, revenue then climbed a further 9.3%, to $17.81 billion.
The company’s earnings rose 6.1%, from $870.4 million, or $11.95 a share, in 2018 to $923.3 million, or $13.04 a share, in 2019. In 2020, earnings fell 2.0% to $904.9 million, or $13.00 a share. The company incurred added costs as the pandemic shut stores. Earnings then jumped 42.6% to $1.29 billion, or $18.91 a share, in 2021 as the economy re-opened. In 2022, despite the higher revenue, earnings fell 3.1%, to $1.25 billion, or $18.75 a share. That was due in part to the company making strategic investments relating to its BetterConnected strategy. As well, it incurred higher supply-chain and other costs.
Meantime, Canadian Tire’s sales in the three months ended April 1, 2023, fell 3.4%, to $3.71 billion from $3.84 billion a year earlier. Even so, that beat the consensus forecast of $3.64 billion.
Overall same-store sales declined 2.5%. That’s largely due to a 4.8% drop at the main Canadian Tire chain as unfavourable weather hurt demand for seasonal items such as gardening equipment. A fire at its Brampton, Ontario distribution centre also impacted the company’s ability to ship merchandise to its stores.
However, same-store sales improved 4.8% at Mark’s, and rose 3.7% at SportChek. As well, e-commerce sales totalled $1.1 billion in the past 12 months. That’s well above pre-pandemic levels.
If you factor out unusual items, Canadian Tire’s earnings in the quarter fell 68.6%, to $57.6 million from $183.6 million a year earlier. Due to fewer shares outstanding, per-share earnings declined at a slower pace of 67.3%, to $1.00 from $3.06. That missed the consensus estimate of $1.31.
The company’s earnings should rebound as the damaged distribution centre re-opens. It also continues to make progress with its new long-term growth plan, including upgrading its stores, online businesses and private-label brands. In all, it will spend $3.4 billion on these initiatives between 2022 and 2025.
The company expects those investments will increase its same-store sales by at least 4% annually. It also anticipates earnings rising by 38.7%, from $18.75 a share in 2022 to $26.00 a share in 2025.
The company aims to pay a dividend of between 40% and 50% of the prior year’s earnings. As a result, the higher projected earnings could increase the annual rate by nearly half, from the current $6.90 a share (for a yield of 4.1%) to at least $10.00 a share by 2026.
With this latest increase, the company’s dividend has now grown an average 13.9% annually over the last 5 years. Its TSI Dividend Sustainability Rating is Highest.
Recommendation in The Successful Investor: Canadian Tire Corp. is a buy.
