Canadian Tire Corporation is a leading retail company in Canada having a presence in the retail, finance and real estate businesses.
The company’s retail and financial services businesses include Canadian Tire, PartSource, Petroleum, SportChek, Mark’s, Helly Hansen, CT REIT, and a Financial Services division. Retail is the larger segment accounting for more than 90% of total revenues, while financial services segment constitutes the remainder. The financial services segment offers credit cards and other financial products.
Canadian Tire’s more than a century’s old existence, has enabled the company to capture extensive market share and build a loyal customer base. The company operates through its huge network of 1700 retail outlets and gas bars. It provides a wide range of products in the automotive, tools & hardware, home & essentials, sports and outdoor living categories.
Canadian Tire also has a 76% interest in CT REIT, a closed end real estate investment trust in Canada, of which it is the primary tenant.Investment Data
- Opportunity Score: 74%
- Ticker: TSE:CTC.A
- Sector: Consumer Cyclical
- Industry: Retail - Apparel & Specialty
- Market Cap: 9.19B
- P/E: 13.72
- Dividend Yield: 2.83%
- Dividend Payout Ratio: 38.79%
- FFO Payout Ratio: Dividend Snapshot Members Only
- FCF Payout Ratio: Dividend Snapshot Members Only
- Chowder Score: Dividend Snapshot Members Only
Revenue Growth & Market Exposure
Most of the Canadian Tire stores are located within high population density areas and serve Canadians from coast-to-coast. The company is enhancing the customer experience by rolling out home deliveries across the nation, and best-in-class store and digital experience. The company is better placed to address the changing needs and shopping patterns of Canadian shoppers, given its rich experience in the retail industry and a strong portfolio of national and consumer brands.
Customers trust the Canadian Tire brand for its product quality and leading reputation. A diverse range of products, marketing expertise, dealer network, and a large footprint have enabled Canadian Tire to expand its retail footprint.
Canadian Tire is one of Canada’s most shopped general merchandise retailers. Acquisition of Helly Hansen further provides a platform for international expansion. Canadian Tire also operates the specialty automotive hard parts banner PartSource and the specialty hockey banner PHL. Its other brands such as Petroleum and Mark’s are amongst the largest independent gasoline retailers and leading apparel and footwear brands, respectively in Canada.
Canadian Tire’s stake in CT REIT further provides a diversified interest in the real estates business. It generates a distribution yield of 5.6% from the REIT.
As a result of the company’s strong product promotions, omni-channel retail capabilities and high credit card charges, revenues have grown, achieving a 6% CAGR from 2016 to 2018. Its financial services have also witnessed strong growth in the average number of active accounts since 2016. The company is projecting its sales to grow by 3% annually.
Canadian Tire last raised its dividend by more than 15% and announced a new share repurchase program. It has increased its dividend for eight consecutive years in a row.
This Canadian Dividend Aristocrat has compounded its dividend growth in the double digit range in the last few years, and sports a dividend yield of 2.9% currently. Canadian Tire is targeting a payout ratio of 30% to 40% of prior year normalized earnings. A reasonable payout ratio will provide enough room for future growth.
The company’s earnings per share has grown by 13.8% CAGR in the last three years, driven by strong revenue and margin growth.
Canadian Tire’s earnings are supported by its reputation of being a one-stop shop for the Canadians for their home and yard needs. Some of Canadian Tire’s recent ventures such as the introduction of Triangle Rewards and home delivery services have supported its earnings growth. Increased revenue in retail banners and operational efficiencies are also yielding improved margins.
Canadian Tire is expecting its EPS to grow by 10% over the next three years, which should support future dividend hikes. Superior real estate locations, national store network and strong dealer network are its core strengths.
Canadian Tire Corp. faces intense competition from independent retailers, specialty shops, dealers, bricks and mortar shops as well as online shopping channels. E-commerce websites such as Amazon.com are pressurizing Canadian Tire’s retail business.
Large US retail brands such as Walmart, Costco, Home Depot, Cabela’s are also strong competitors. However, market leading merchandising strategies differentiates Canadian Tire from its peers.
As a leading retail brand in Canada, the company continues to introduce innovative and improved product categories across the retail banners and financial services business. It is also expanding its presence through e-commerce and other digital offerings. Canadian Tire should continue its dividend growth streak in the future, given its expanding online presence, favorable retail locations, and a large portfolio of world class products.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.