Couche-Tard – Too Cheap To Ignore

Couche-Tard

Couche-Tard – Too Cheap To Ignore

hey everyone

In this overpriced market it’s getting harder and harder to decide where to deploy capital but a stock I have watched for awhile recently dipped 10% on acquisition news. It definitely won’t get you excited with its starting yield but its extremely low payout ratio, massive dividend growth and price appreciation should make you consider this stock.

Obviously based on the title of this post I’m talking about Alimentation Couche-Tard Inc – Atd.b on the tsx.

This is a new holding in our portfolio and I decided to put it in our kids resp. I think its great for the resp as I wont need the money for 10-15 years and offers both price appreciation and dividend growth.




Who are they?

Alimentation Couche-Tard Inc. focuses on the convenience store industry. The Company focuses on the sale of goods for immediate consumption, road transportation fuel and other products through stores and franchise operations. It operates its convenience store chain under several banners, including Circle K, Corner Store, Couche-Tard, Holiday, Ingo, Mac’s, Re.Store and Topaz.

It operates and licenses approximately 12,575 convenience stores across North America; Ireland; Scandinavia, including Norway, Sweden and Denmark; Poland; the Baltics, including Estonia, Latvia and Lithuania and Russia, of which 9,794 are company operated and generates income primarily from the sale of tobacco products and alternative tobacco products, grocery items, candy and snacks, beverages, beer, wine and fresh food offerings, including quick service restaurants, car wash services, other services and road transportation fuel.(Source Rbc – Direct Investing)

Got to love that geographical diversification!

couche-tard

Why did they drop 10%

On Tuesday night we heard that Couche-tard  submitted a offer to Carrefour SA at a price of €20.00 per Carrefour share. (equal to about 19.66 billion)

This would be a massive acquisition and would also make couche-tard get into the grocery business. I guess shareholders weren’t a fan of the news, but on Wednesday the French government was already saying the deal wouldn’t go through.

The way I looked at it, hey if it go’s through they must see something they like. They have a great track record of acquisitions. If it doesn’t there is a easy 10% gain once the stock price go’s up to previous prices. Kind of a win win.

DGI Stock

The stock is kind of a dividend growth investors dream. Other than the starting yield – we got in at a .96% starting yield. Its low and a lot of people will question it, I hear about cnr’s low starting yield all the time! Meanwhile that stock remains my favourite stock we hold.

Couche-Tard has an 11 year dividend growth streak and a payout ratio of only 11.11% In November they raised their dividend by 25% and they sport a solid 10 year dividend growth rate of 27.3%. 5 Year sits at 21.7%.

Considering I don’t need the money now this is a great long term stock to have.

The Purchase

I saw a lot of people buying couche-tard the last couple days through twitter. It offered a nice price to get in for a couple days. We purchased 35 shares at 37.22 per share. This will add $12.25 to our forward income. Not a massive amount but this is a grower.

Macs and Circle K are 2 companies I pop into once in awhile and I always love owning companies that I do business with.

Over the last couple years I keep getting reminded not to chase yields. All of my dividend cuts have been high yield companies other than disney. In 2021 I plan on focusing on quality and or higher dividend growth rates and ignoring starting yields. (to a point) Its nice to see some immediate cash flow but these dividend cuts really are not fun to see. Gotta keep growing that income and avoid all these hiccups along the way.

Conclusion

Well there it is, a short and sweet post. Not a massive purchase but I’m glad to get in at these prices. Sometimes the market will offer up these deals, but you got to be fast to take advantage of them.

In a world full of lock downs, I’m still surprised to see the market chugging along. Who would of thought. Time in the market always beats timing the market.

Here’s hoping we see some more dips in 2021. Did you buy anything recently? or take advantage of this recent drop?

cheers

Rob!

24 Responses

  1. Matthew says:

    Great buy Rob, I was able to buy 40 shares myself.

  2. I’m going to take a closer look at this one after the dip, as well, Rob. Enjoyed the article and your thesis around it.

    As far as dividend starting yields… the REI.UN cut hurt many of us in Canada. High yields are more subject to being cut. As you mentioned, DIS is the only one I’ve had that has really taken a hit, and their suspension is understandable also in light of them focusing on huge streaming growth.

    Take care,
    Ryan

    • Rob says:

      hey Ryan

      Exactly. The disney cut actually doesn’t me at all, its understandable at this time and the price appreciation easily made up for their low dividend. Still on the fence to hold our riocan shares or bundle them up in that rit etf

      cheers!

  3. Great article as always Rob. I will definitely add few more shares !

  4. Stuart says:

    I added to my position in ATD.B this week after the announcement and price drop.

  5. German says:

    Same here. We added to our position through our other accounts at around 37.

  6. May says:

    I think I really need to stick to my investment strategy: dividend growth. Not only should not chase the yield, also should get rid of the stocks that are not growing their dividends. Companies with dividend growth is less likely to cut the dividends I guess.

    Also added to my ATD.B position. I have bought ATD.B beginning this year at $43.25, only saw it dropped a lot in a very short time. I have then bought ATD.B twice in my non registered account at $36.95 and $36.10. ATD.B is a solid company and I am buying it as a long term holding.

    • Rob says:

      yeah I got a couple that havent raised their dividend and they are on the chopping block..

      Nice May great purchases, you are already in the green on them!

      keep it up!

  7. I am echoing on “not to chase yields. All of my dividend cuts have been high yield companies”. Indeed growing EPS and dividend strikes make ATD.B a good candidate to be added to our dividend portfolio. Thanks for sharing.

    • Rob says:

      hey hey hey

      yeah the cuts hurt. Got to stick to the plan of dividend growth stocks. We are all guilty of getting side tracked. =)

      cheerz!

  8. May says:

    Talking about dividend growth, what do you think about CU? I am pretty disappointed with this utility. 3% increase last year and 1% this year, looks like a candidate to dump and switch to something else.

    • Rob says:

      Ahhhh May, me too!

      I keep looking at that. That was super disappointing, nice to see the stock go up in price after the raise though. Slightly down on them and really debating swapping for fortis.

      At the same time their earnings have gotten hurt getting rid of their dirty energy, maybe this is just a blip.

      But fortis seems to have alot more projects in the pipeline for the future.

      This is one I keep debating, lmk what you buy if you decide to swap.

      cheers May

  9. DividendsOn says:

    Yes, I’m disappointed in CU as well, but no plans to sell at this time. Hard for me to dump a company that has grown it’s dividends for the past 27 years usually well over 6% per annum in the good years. Perhaps management can eventually turn things around, I don’t know. I’ve held CU since 2004 and last quarter alone this company gave me near $400 in dividends. This money I can take along with other dividends from the portfolio and add any savings to buy more Canadian dividend growth companies over time that are showing to be a bit more prosperous at the moment.

    Looking forward to seeing if CNR or MRU can still increase their dividends at double digit rates. That should be coming up before the end of this month.

    Who knows, perhaps RCI.b will finally start increasing their dividend again, although I’m not counting on it.

    • Rob says:

      wow congrats on that cu payout. 400 is awesome!
      cu has grown their dividend for 49 years though. I hear ya its hard to turn your back on a company with that kind of record.

      I’m really looking forward to that cnr raise, I think last year was 7% double digit would be fantastic. Their stock price has done very well, so maybe that will help to boost over 10%. Id love for this stock to dip, I want more cnr! not at these prices though.
      I think metro will boost theirs, business is very good right?

      I doubt rogers will boost theirs they aren’t really a dgi stock, more growth I think.
      keep it up, cant wait til i hit 400 a quarter from one company!

  10. May says:

    I am not sure what to switch it to. I have plenty in both FTS and EMA already, and still quite some cash and not fully invested yet. So probably will hold for longer but will eventually sell them for sure.

    • Rob says:

      Algonquin may be a good option. I think they will do very well this year and plan to add to our position throughout the year. Its hard selling a company with cu’s track record of dividend raises.

  11. I want to add more shares of ATD.A, indeed to cheap to ignore ! 📈💲👌

  12. Ramesh Gaonkar says:

    Interesting article and great buy Rob. I will be further assessing the stocks before investing. Hoping that they will drop more so that I maximize on my profit. Due to lockdown, I am currently in loses, therefore can’t afford more investment currently.

    • Rob says:

      hey Ramesh

      Thanks. I hope things drop as well, eventually they will but who knows when…
      I hear ya about these lock downs they are brutal. Hopefully spring comes soon enough and we have some vaccines by the fall for the people that want them.
      cheers

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