Every Tuesday we bring you “Best Canadian Stocks.” You get our specific recommendation on the stocks we profile, with a full explanation of how we arrived at our opinion. You’ll read about stocks making moves you should know about, from coverage in one of our three newsletters featuring Canadian stocks—The Successful Investor, Stock Pickers Digest and Canadian Wealth Advisor.
CANADIAN TIRE CORP. (Toronto symbol CTC.A; www.canadiantire.ca)operates 492 Canadian Tire stores, which specialize in automotive, household and sporting goods. It also owns other retail chains, such as Mark’s (casual clothing) and SportChek.
The company continues to add new locations and renovate older stores. It’s also benefiting from its 2011 purchase of the Forzani Group of sporting goods stores, including the popular SportChek banner. These moves are helping it compete with U.S.-based retailers like Wal-Mart.
Earlier this year Canadian Tire agreed to sell 20% of its credit card operations to Bank of Nova Scotia for $500 million. The company has an option to sell an additional 29% to the bank over the next 10 years.
Hidden value in plain sight
Pat McKeough puts a premium on safety in The Successful Investor—and seeks out the hidden value that brings spectacular gains. He finds value where many others fail to look—right out in plain sight in well-established dividend stocks. Like the real estate assets whose value Canadian Tire and Loblaw unlocked when it spun those assets into REITs. Or the undervalued assets of CP Rail that caused that stock to soar—over 70% in a year—when Pat made it his Canadian Stock of the Year.
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Rising earnings prompt dividend hike
In the quarter ended September 27, 2014, Canadian Tire’s earnings rose 18.4%, to $172.2 million from $145.5 million a year earlier. Earnings per share gained 21.2%, to $2.17 from $1.79, on fewer shares outstanding.
Overall sales rose 3.9%, to $3.1 billion from $3.0 billion. Same-store sales at the 493 Canadian Tire outlets gained 3.2% on strong demand for summer goods, like garden tools and patio furniture, and automotive products and services.
Same-store sales jumped 8.5% at the company’s 429 sporting goods stores and 6.8% at the 383 Mark’s casual-clothing stores.
The gains prompted the company to raise its dividend by 5.0%. The new annual rate of $2.10 yields 1.7%.
The stock is up 29% in the past year, but it still trades at a reasonable 16.8 times the company’s projected 2014 earnings of $7.50 a share.
Canadian Tire is a buy recommendation of The Successful Investor.
Tomorrow in our Investor Toolkit we give you the pros and cons of Dividend Reinvestment Plans.
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