Rising earnings make Loblaw the better pick

These two Consumer sector leaders continue to do a good job coping with rising operating costs. However, Loblaw is in a better position than Molson Coors to pass along those higher costs to customers.

LOBLAW COMPANIES LTD. $128 is a buy. The company (Toronto symbol L; Conservative-Growth Dividend Payer Portfolio, Consumer sector; Shares outstanding: 322.8 million; Market cap: $41.3 billion; Dividend yield: 1.3%; Dividend Sustainability Rating: Highest; www.loblaw.ca) operates 1,098 supermarkets under several banners, including Loblaws, Zehrs, Provigo, Real Canadian Superstore and No Frills. It also operates 1,346 associate-owned Shoppers Drug Mart locations.

Loblaw last raised its quarterly dividend with the July 2022 payment. Investors now receive $0.405 a share, up 11.0% from $0.365. The annual rate of $1.62 yields 1.3%. The company has increased the annual rate each year for the past 11 years.

In 2023, Loblaw plans to open or relocate 38 of its stores. It will also convert or renovate a further 600 outlets.

In all, these projects will cost roughly $2 billion. To put that amount in context, Loblaw earned $2.26 billion, or $6.82 a share, in 2022.

These investments should help the company attract more customers and lift its earnings in 2023 by about 12% to $7.61 a share. The stock trades at a reasonable 16.8 times that estimate.

Loblaw is a buy.

MOLSON COORS CANADA INC. is a hold. The company (Toronto symbols TPX.A $81 and TPX.B $80; Conservative Growth Payer Portfolio, Consumer sector; Shares o/s: 216.7 million; Market cap: $17.3 billion; Dividend yield: 2.8%; Dividend Sustainability Rating: Average; www.molsoncoors.com) is the world’s fifth-largest brewer. Its main brands include Molson Canadian (Canada), Coors Light (the U.S.) and Carling (the U.K.).

Molson continues to benefit from the reopening of bars and restaurants. As a result, it raised your quarterly dividend with the March 2023 payment by 7.9%, to $0.41 U.S. a share from $0.38 U.S. The new annual rate of $1.64 U.S. yields 2.8%.

Due to the long-term decline in beer consumption, the company is now expanding its portfolio with other beverages. For example, it recently partnered with Coca-Cola Co. (New York symbol KO) to launch Topo Chico Hard Seltzer in the U.S.

The partners now plan to launch a new, peach-flavoured hard tea beverage (5% alcohol) later this year. Molson expects the global hard tea market could grow from $2 billion in 2022 to $19 billion in 2032.

Molson also owns 57.5% of Truss, a joint venture with cannabis producer HEXO Corp. (Toronto symbol HEXO); Truss that makes and sells non-alcoholic, cannabis-infused beverages in Canada.

Despite these new beverages, rising costs for ingredients and labour will probably cut the company’s earnings in 2023 by 1% to $4.07 U.S. a share in 2023. The stock trades at 14.5 times that forecast.

Molson Coors is a hold.


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