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Alimentation Couche-Tard: Is More Growth Coming?

This is a guest contribution written by Kay Ng who writes on Motley Fool Canada and also writes on Seeking Alpha under the alias Canadian Dividend Growth Investor. She also maintains a blog at Passive Income Earner with a focus on dividend investing as a Canadian investor in Canada and the U.S.

Dividend investors might initially ignore Alimentation Couche-Tard (TSX:ATD.B)(OTCPK:ANCUF) because it pays a tiny dividend. However, Couche-Tard has been an outstanding investment in total returns.  Low yield stocks can fit well into a dividend portfolio.

In the last five years, the stock appreciated 500%, greatly outperforming the U.S. and Canadian stock markets. An investment of $10,000 five years ago would have transformed into a little over $56,600 with price appreciation and dividends received.

ATD Performance

Source: Google Finance as of close of June 22, 2016

As well, it has increased its dividend at a tremendous rate.

If you generated $1,000 of dividends from an investment in Couche-Tard five years ago, this year, the same investment would generate $3,799 of dividends.

The Growth Story

Couche-Tard opened its first convenience store in Quebec, Canada in 1980. Fast-forward to today, the company has leading positions in North America, Scandinavia, and the Baltics.

At the end of January 2016, Couche-Tard had 7,979 North American stores across Canada’s 10 provinces and the United States’ 41 states, 2,218 stores in eight countries in Europe, and 1,500 licensed Circle K stores ran by independent operators in 13 other countries or regions in the rest of the world, including Indonesia (518 stores), Mexico (313), Hong Kong (330), Vietnam (134), and China (96).

ATD Geographic Diversification

Geographic diversification based on the number of stores at the end of January 2016

Value Creation

Couche-Tard creates value from organic growth, acquisitions, and cost control.

Organic growth comes from same-store sales growth. For example, Couche-Tard drives organic growth by focusing on customer needs, responding to market trends, execution, and branding.

Since September 2015, Couche-Tard has been progressively rebranding its stores that operate under different banners (including Mac’s, Ingo, Kangaroo Express, and Statoil) to Circle K, which is its most international brand. This way, the company can focus its branding efforts and increase traffic and sales.

However, Couche-Tard decided to retain the company’s founding Couche-Tard brand in the province of Quebec, Canada, where the brand is deep in the hearts of residents there.

ATD Rebranding Circle K

Source: Investor presentation (pdf) – Slide 38

Growth and Profitability

Couche-Tard has been a superb convenience store operator and integrator. It has extensive experience in integrating acquisitions successfully.

ATD Acquisitions

Source: Investor presentation (pdf) – Slide 40

Since Circle K in 2003, Couche-Tard has integrated more than 5,550 stores from more than 50 acquisitions. Further, it can apply best practices across the board.

In the fiscal year 2008 that ended in April, Couche-Tard’s EPS fell 14% but came back strongly by increasing 58% in the fiscal year 2009, indicating that its business outperforms in a recession, which many businesses fear.

From 2010 to 2015, Couche-Tard’s free cash flow grew at a CAGR of 28.6%, its EBITDA grew at a CAGR of 23.7%, and its net earnings grew at a CAGR of 25.2%.

In the fiscal year 2015, Couche-Tard earned US$34.5 billion of revenue and its EBITDA was US$1.9 billion.

ATD Returns

Source: Investor presentation (pdf) – Slide 49

The return on equity (ROE) measures a company’s profitability. It calculates how many dollars of profit a company generates with each dollar of shareholders’ equity. The higher the ROE the better. Couche-Tard has an industry-leading ROE of 25%.


It may be easy to shrug off Couche-Tard’s dividend because it only yields about 0.50% today. But in the past 10 years or so, it has increased its dividend at a CAGR of 25.3%.

So if you generated $1,000 of dividend income from a Couche-Tard investment 10 years ago, you would generate $9,539 from the same investment today. That’s 9.5 times more in income!

Of course, after 10 years, Couche-Tard is a much bigger company than before, so its growth rate is likely to be lower. However, investors shouldn’t discount Couche-Tard as an excellent business to invest in.

In slide 40 above, Couche-Tard has agreed to acquire 1,038 sites from three big acquisitions. Integrating them into the Couche-Tard network will allow the company to extract synergies like it did in previous acquisitions.

Most recently, in June 2016, Couche-Tard signed an agreement to acquire 23 locations operating under the Premium 7 brand to expand its footprint in Europe. These locations will operate under the Circle K brand within a year.

So, Couche-Tard is always on the lookout for acquisition opportunities to grow its business.

If you plan to invest for the long term, Alimentation Couche-Tard will be an excellent addition to your portfolio for high total returns and future income.

About the author:  Canadian Dividend Growth Investor shares her top dividend ideas every month and her high-quality U.S. and Canadian portfolios through her service with real-time updates on Seeking Alpha.

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