Given the increase in popularity of Amazon.com, Inc. (NASDAQ:AMZN), more shoppers are buying a significantly higher portion of their groceries online, which signals a shift in consumer behavior.
Although this could make the grocery environment more challenging, investors still have the opportunity to stand back and ask the question: “Who will benefit from this?”
The answer may be convenience stores and dollar stores.
Alimentation Couche Tard Inc. (TSX:ATD.B) investors have been very well rewarded over long periods of time.
As many consumers have started to go online, the number of things that are forgotten increases. The result is that consumers need to quickly run to a store to pick up the things they’ve forgotten. Most people want to avoid the large grocery stores, so it’s the smaller, more convenient stores that pick up the slack.
Over the past decade, shares of Couche Tard, the country’s largest convenience store, increased by more than 700% with slightly less than half of that return coming in the past five years. The one-year return is 8%, while investors collected a dividend of less than o.75%.
Clearly, investors are looking for capital appreciation and not dividend income when entering this name.
The takeaway for investors considering this convenience store behemoth is that the total share count has remained very stable over the past few years, while earnings have increased each of the past four years. The compounded annual growth rate (CAGR) of earnings per share (EPS) is 24.6% from fiscal 2013 to fiscal 2016.
Dollarama Inc (TSX:DOL) has a significant number of locations in strip malls, making the experience a little more convenient for the consumer. Instead of having to go into either a grocery store or a shopping mall, many of these stores are now located right off the street.
The company, which became publicly traded less than 10 years ago, has returned a total of close to 1,150% since October 2009. Over the past five years, the price return is almost 300% with approximately 32% coming over the past year. The dividend is less than 0.5% for shareholders.
Investors will want to consider shares of Dollarama for the large increases in revenues. From fiscal 2013 to fiscal 2016, the CAGR of revenues was nothing short of 12.8%. Earnings did even better, growing at a rate of 28.7%. It is easy enough to see why investors have enjoyed holdings shares of this dollar store.
Because the way customers are now buying groceries and household goods has evolved with the scaling of the online channel, it is important for investors to remember that the capital invested in any security is not permanent. When one company or sector falls out of favour, it is easy for individual investors to sell shares in one company and buy those of another.
In this case, the track record of each company speaks for itself.
