It is no secret that the Canadian stock market is not very well diversified by sector. Canada is largely financial, energy and materials, with all of that other stuff in between. By investing in Canadian retail stocks, investors can add some much-needed diversification.

Canadian retail stocks can also help investors profit during times of economic strength and certain types of retail stocks can offer a nice hedge against periods of slow growth or recessions. 

 A certain segment of Canadian retail stocks can also help the inflation fight – think Canadian grocers  or convenience stores that have profited handsomely over the last two years. 

Our favourite Canadian retail stock is Alimentation Couche-Tard (ATB).  As always, Mike from Dividend Stocks Rock sums up our investor thesis:

While the concentrated Canadian stock market might be a disadvantage for those who own a stock market ETF or mutual fund, it might present an opportunity for investors who create their own stock portfolio. When we build our own stock portfolio we certainly do not need to follow the index weighting. We can build a more balanced portfolio. 

Here’s the current sector breakdown for the Canadian market. The chart for the TSX Composite, ticker XIC, is courtesy of BlackRock Canada. 

sector breakdown canada 2023

And when we build our portfolio we Canadians will largely shore up those sector holes by investing in US dividend growth stocks or perhaps a US dividend ETF or market ETF. 

The Canadian retail stocks are mostly economically sensitive. Canadians need to be employed and with free cash flow to spend at these retail stores. They often depend on a healthy economy and economic growth. 

Retail stocks will fall into two categories. First off there are consumer staples or defensives. As per the name they are staple items that we simply need in our daily lives. And then there are consumer discretionary companies. Those are items that are not necessities but are a choice of how to personally allocate money for personal needs and wants. 

Early in 2023 many analysts and economists are preparing for an earnings recession. Of course, there is no guarantee that will occur but that is the consensus. In a recent report BMO offered only Consumer Discretionary, Consumer Staples, Industrials, and Utilities saw net positive earnings projections for the first two quarters of 2023. 

From BMO, top Canadian retail stock picks include Alimentation Couche-Tard, Dollarama Inc., and Metro. 

I continue to be a fan of the generous free cash flow for Canadian oil and gas stocks. And being in semi-retirement I like the idea of Canadian energy dividends.

Dividend Investing for Canadian Retail Stock Pickers

As we know the Canadian Dividend Investor will often invest in Canadian banks and other financials as the bedrock of the portfolio. We might then turn our attention to Canadian energy stocks and investing in Canadian REITs is a wonderful source of income and portfolio diversification. 

You’ll find more ideas in the best Canadian dividend stocks for 2024

Some Wide Moat Retail Stocks in Canada

I am a big fan of investing in wide moat or moat stocks that suffer from very little competition. They might even be in an oligopoly situation such as the banks. 

We also mentioned those moats when investing in Canadian railway stocks

There’s nothing like a moat to help protect our earnings, free cash flow and dividend growth. 

When it comes to investing in Canadian retail stocks we might build around the grocers. The space is dominated by a few players, so much so that it is oligopoly-like. Canadians mostly want to shop at a full service grocer. As an added benefit and layer of diversification, a few of the grocers also own the major pharmacy chains in Canada. 

On that front we’ll start with Loblaws (L) that acquired Shoppers Drug Mart several years ago. 

Metro (MRU) Metro is a leading food and pharmaceutical company that covers Quebec and Ontario. The brand names areMetro, Metro Plus, Super C, Food Basics, Adonis, and Premiere Moisson, as well as the pharmacies under the Jean Coutu, Brunet, Metro Pharmacy, and Food Basics Pharmacy names. 

Empire (EMP.A) is a food conglomerate that operates Sobeys. Other brands and outlets include Safeway, IGA, Foodland, Farm Boy, FreshCo, Thrifty Foods and Lawtons Drug.

Here’s the returns history for the big 3 Canadian grocery stocks:

canadian grocery stocks performance
Source: Portfolio Visualizer

The grocers have been wonderful Canadian retail stocks. They are less economically sensitive. It can be a good idea to overweight these stocks for defensive purposes, and again as part of the dedicated inflation protection. 

Another interesting add on in this space is The Northwest Company (NWC). The North West Company caters to the needs of underserved and rural communities in Northern Canada, Western Canada, rural Alaska, the South Pacific islands, and the Caribbean. You will gain some international diversification. It generates 75% of its revenue from food sales and the remainder from general merchandise and various offerings. 

This stock has been another wonderful performer. It has averaged 9.55% annual over the last ten years and an incredible 14.16% annual over the last 3 years. Northwest has been a wonderful inflation stock.

Fuel up with Alimentation Couche-Tard

Alimentation Couche-Tard (ATD.B) is an incredible Canadian success story. It is one of the most international of the popular Canadian dividends stocks. From Couche-Tard:

Couche-Tard is a global leader in convenience and fuel retail, operating in 26 countries and territories, with more than 14,200 stores, of which approximately 10,800 offer road transportation fuel. With its well-known Couche-Tard and Circle K banners, it is the largest independent convenience store operator in terms of the number of company-operated stores in the United States and it is a leader in the convenience store industry and road transportation fuel retail in Canada.

Couche-Tard is a global leader in convenience and fuel retail, operating in 26 countries and territories, with more than 14,200 stores, of which approximately 10,800 offer road transportation fuel.

With its well-known Couche-Tard and Circle K banners, it is the largest independent convenience store operator in terms of the number of company-operated stores in the United States and it is a leader in the convenience store industry and road transportation fuel retail in Canada. 

They also have significant presence in other regions around the globe. Couche-Tard are habitable acquirers that know how to bolt on acquisitions and feed that income and dividend stream. Here’s Mike at DSR with a quick video:

In the same space you might also look to Parkland Fuels (PKI) Parkland is a Canadian independent fuel retailing company based in Calgary, Alberta. Its subsidiaries include several gas station chains, including Pioneer, Fas Gas Plus and Ultramar.

Parkland has had a rough go over the last 3 years, losing about 11% annual over the period. On the plus side, the dividend has held steady and was increased by 5.4% in the first quarter. In January of 2023 the yield is in the 4.2% area.

Grab a Tims While You’re on the Road

Tim Hortons (QSR) is one of the most iconic brands and institutions in Canada. They cover every street corner across much of the country and they also have a significanthave significant presence in the U.S. northeastnorth east. They also have global expansion plans. 

Tim Hortons is part of Restaurant Brands International. The stock offers an interesting opportunity as it is listed in Canada on the Toronto Stock Exchange, but it is more of a US focused company compared to Canadian. QSR (the ticker stands for Quick Serve Restaurant) also includes the very successful Popeyes and Burger King. They also recently acquired Firehouse Subs. 

While Tim Hortons has weakened in recent years, it is still a strong brand with strong sales. Popeyes and Burger King have been ordering up the growth. 

A recent quarterly report from April of 2021 offered … 

System-wide sales growth was up 1.4% during the quarter, including a 1.8% gain for the Burger King business and 7.0% increase for Popeyes. The Tim Hortons business saw a sales drop of 4.9% during the quarter. 

In the latest quarterly report consolidated system-wide sales grew 14%, including 12% at Popeyes, 13% at Tim Hortons and 14% at Burger King.

QSR delivered 12.2% in 2022. It has been a very good inflation fighter. 

A little bit of junk food might just hit the spot for the Canadian dividend portfolio.

More Iconic Canadian Brands

Most Canadians have a place in their heart for Canadian Tire (CTC.A). It is a wonderfully run business with a very strong brand. The company and stock has been surprisingly resilient over the years, they have been able to fend off competition from US and global players. It operates in the automotive, hardware, sports, leisure and housewares sectors. Its Canadian operations include: Canadian Tire, Mark’s, FGL Sports, PartSource, and the Canadian operations of Party City. 

The company has delivered spectacular dividend growth in 2022 as the share price has slipped. CTI delivered total returns of 20.6% in 2020, 67.8% in 2021 and then fell 25.5% in 2022. 

You might also take a seat with Leons Furniture (LNF). The company has locations in every Province across Canada. This company has been a long-time (and surprising) Canadian success story. This company is like off of the radar for many Canadian dividend investors. It is currently cheap, and it offers a solid dividend. And it is known to throw the occasional special dividend at you. 

As recession worries persist, Leon’s also dropped in 2022. It fell 28% in 2022, after being up about 30% in each of 2020 and 2021. It has been a solid performer with an average of 6.7% annual over the last decade. 

Sleep Tight with ZZZ

You might also consider the iconic Sleep Country (ZZZ), great ticker by the way. 

Sleep Country Canada Holdings Inc. is a Canadian mattress retailer, with over 260 stores operating in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Prince Edward Island and Nova Scotia.

The same story hit ZZZ. After a strong 2020 and 2021 the stock went to sleep in 2022.

Those Loonies Can Add Up

Canada has its own low budget dollar store by way of Dollarama (DOL). They’ll feed your portfolio one loonie at a time. 

Dollarama is a Canadian dollar store retail chain headquartered in Montreal. Since 2009, it is now Canada’s largest retailer of items for four dollars or less. Dollarama has over 1000 stores and has a presence in every province of Canada. 

While Dollarama has been on the expensive side (ironically), it has absolutely destroyed the TSX over the last decade and more.

As expected the stock has done well in 2022 thanks to the recession worries, when discount retailers can do well. The stock was up 25.4% in 2022 after ringing up gains of 22.5% in 2021 and 16.7% in 2020.

Canadian Retail Stocks For Your Portfolio

You might also consider the success story known as Canada Goose (GOOS) and Lululemon (LULU) in the specialty clothing brand category. 

This post might help you realize that while Canadian retail stocks don’t always get a lot of press, it is actually a very robust sector that has served investors well. We might build around our favourites such as bank stocks, telco stocks, utilities, energy and pipeline stocks

Your portfolio could likely benefit by investing in Canadian retail stocks. It adds some wonderful layers and diversification. We also have the option to select defensive retail stocks if we want to shore up the portfolio to prepare for retirement or recessions. 

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Dale Roberts

Dale Roberts is the owner operator of the Cut The Crap Investing blog. He also writes a weekly column for MoneySense.
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