LOBLAW COMPANIES LTD. $76(Toronto symbol L; Conservative-Growth Dividend Payer Portfolio, Consumer sector; Shares outstanding: 365.5 million; Market cap: $27.8 billion; Dividend yield: 1.7%; Dividend Sustainability Rating: Highest; www.loblaw.ca) operates 1,085 supermarkets under several banners, including Loblaws, Zehrs, Provigo, Real Canadian Superstore and No Frills.
In March 2014, the company purchased the Shoppers Drug Mart chain for $12.3 billion in cash and shares. Shoppers now operates 1,338 drug stores across Canada.
With the June 2019 payment, Loblaw raised its quarterly dividend by 6.8%. Investors now receive $0.315 a share instead of $0.295. The new annual rate of $1.26 yields 1.7%.
The company earned $373 million from ongoing operations in the three months ended June 15, 2019. That’s unchanged from a year earlier. Due to fewer shares outstanding, per-share earnings increased 3.1%, to $1.01 from $0.98.
Loblaw’s revenue rose 2.9%, to $11.1 billion from $10.82 billion.
The company recently expanded its use of computer modelling programs to improve profit margins at its supermarkets. However, that led to more-modest price discounting, which hurt customer traffic. As a result, same-store sales for its supermarkets rose just 0.6% year over year compared to the 0.8% gain a year earlier.
Shoppers Drug Mart’s same-store sales rose 4.0% in the quarter. The gain reflects a 4.8% increase in prescription drug sales and a 3.3% rise in the sale of other merchandise.
Loblaw’s overall long-term debt at the end of the quarter was $6.4 billion, or a manageable 23% of its market cap. It also held cash of $1.2 billion.
The company will probably earn $4.25 a share for all of 2019, and the stock trades at 17.9 times that forecast.
Loblaw is a buy.
METRO INC. $59(Toronto symbol MRU; High-Growth Dividend Payer Portfolio, Consumer sector; Shares outstanding 255.2 million; Market cap: $15.1 billion; Dividend yield: 1.4%; Dividend Sustainability Rating: Highest; www.metro.ca) operates 600 grocery stores and 650 drugstores, in Quebec, Ontario and New Brunswick.
With the June 2019 payment, Metro raised its quarterly dividend by 11.1%. The new annual rate of $0.80 yields 1.4%.
The company continues to benefit from its May 2018 acquisition of drugstore-chain operator Jean Coutu Group. It paid $4.5 billion (75% in cash, 25% in shares).
Excluding unusual items, Metro earned $155.1 million in its fiscal 2019 third quarter, ended July 6, 2019. That’s up 25.6% from $183.4 million a year earlier. Due to additional shares outstanding, earnings per share rose at a slower rate of 20.0%, to $0.90 from $0.75. Overall sales rose 12.8%, to $5.23 billion from $4.64 billion. If you disregard Jean Coutu, sales gained 2.3%.
Same-store sales at the food stores rose 3.1%. Higher prices accounted for about 80% of that gain. Same-store sales at the pharmacies rose 3.4%. That reflects a 2.9% gain in sales of prescription drugs, and 4.3% higher sales of other merchandise.
Metro continues to close stores and renovate others in the wake of the Jean Coutu acquisition. So far, those actions have cut its annual expenses by $61 million.
Although it borrowed most of the cash it needed for the Jean Coutu acquisition, Metro’s long-term debt of $2.6 billion (as of July 6, 2019) is a moderate 17% of its market cap. The company also holds cash of $263.3 million.
The stock trades at a reasonable 20.7 times the projected fiscal 2019 earnings of $2.85 a share.
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