Electric vehicles are coming in strong… A world without car running on fuel? There’s a convenience store that already thought about it! Alimentation Couche-Tard is a Canadian company that operates a network of convenience stores mostly across North America. While its yield is very low, it is an interesting addition to any kind of portfolio, even retirees’.
With its stock price appreciation potential, its proven recession-resiliency business model, its growth by acquisition strategy and its electric vehicles superchargers, ATD has everything an investor needs! Let’s discuss this company more in details with this stock analysis.
Business Model
Alimentation Couche-Tard Inc. operates a network of convenience stores across North America, Ireland, Scandinavia, Poland, the Baltics, and Russia. The company primarily generates income through the sale of tobacco products, groceries, beverages, fresh food, quick-service restaurants, car wash services, other retail products and services, road transportation fuel, stationary energy, marine fuel, and chemicals. In addition, the company operates more stores under the Circle K banner in other countries such as China, Egypt, and Malaysia. Its operation is geographically divided into U.S., Europe, and Canada. Revenue from external customers falls mainly into three categories: merchandise and services, road transportation fuel, and other.
Investment Thesis
An investment in ATD is definitely not for an income-producing stock. However, if you are looking at the long-term horizon, your dividend payouts will grow in the double digits for a while and you will enjoy a strong stock price growth. ATD’s potential is directly linked to its capacity to acquire and integrate more convenience stores. Management has proven its ability to pay the right price and generate synergy for each deal. ATD shows a perfect combination of the dividend triangle: revenue, EPS and strong dividend growth. With the coronavirus’s impact on the economy, ATD may be able to acquire more chains at attractive prices.
In the video below, I’ve discussed recent news about the company getting into electric charging stations and how Alimentation Couche-Tard is set to become a dominant player in the electric vehicles growth.
Potential Risks
Growers by acquisition are all vulnerable to occasionally making a bad purchase. While ATD’s methodology to acquire and integrate more convenience stores has been proven, it is important for them to not grow too fast or become too greedy and possibly overpay in the name of growth. Still, it doesn’t seem like this is an issue with the current management team. The economic slowdown will negatively affect its sales (notably fuel sales) in 2020 and 2021. The stock price may go sideways for a while.
Dividend Growth Perspective
The mediocre 0.70% dividend yield is so low ATD shouldn’t even be considered as a dividend grower. However, the dividend payout has surged in the past 5 years (+154%) and the stock price jumped by over 55% (including the stock price drop in early 2020). The only reason why the dividend yield is so low is because ATD is on a fast track for growth. ATD will continue increasing steadily its payout while providing stock value appreciation to shareholders.
Final Thoughts
It’s almost the end of 2020 and it has been a year filled with lots of ups and downs. Since this Holiday Season will be very unique and we will not have as many parties or traditional family gatherings to attend, you might want to take this time to look at your portfolio and get it ready for the New Year. Alimentation Couche-Tard can certainly help getting inspired!
In the past months, I’ve been working on a recession-proof portfolio workbook to help you reach your goals. It is a combination of actionable strategies and exercises helping you growing your confidence in investing. Get it for free now!
I am a “dividend grower” investor; ergo, never bought this stock. I own: all 5 banks, TRP, ENB, IFC, BCE, T, BIP.UN , JNJ and bought earlier this year at low prices: CTC.A, EIF, QSR (has not done much yet), MFC, NWH.UN & DIS. These are in my non-registered account only. I generate a lot of dividends as I have owned most of these and added on weakness over the last 11 years. I guess I should sell DIS as I am up a lot and they cut their dividend. My point: I have been thinking of buying 1500 shs of ATD – maybe now is the time – wait till new year?