During economic downturns, investors can seek safety in the consumer staples sector, particularly in food stocks. Companies in this industry are relatively recession resistant in that people will cut down on leisure spending — not food or everyday necessities. In the current environment, the sector displays resiliency year to date (+6.07%).
You should feel safe owning shares of Loblaw (TSX:L) and Metro (TSX:MRU); the food retailer giants are consumer-defensive stocks. Premium Brands Holdings (TSX:PBH), a third option, is also less susceptible to economic fluctuations.
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Retail excellence
Loblaw is an iconic name in food retailing and pharmacy. The $39.8 billion company started operations in 1919, and today, 90% of Canadians live in close to one of its locations. Its board chairman Galen G. Weston said, “In the face of ongoing inflation, we are working hard to deliver the value and choice Canadians are looking for.”
In the first quarter (Q1) of 2023, revenue rose 6% year over year to nearly $13 billion, while net earnings fell 4.3% to $418 million. Despite the decline in income, the board approved a 10% increase to the common share dividend to mark 12 consecutive years of dividend increases. At $124.18 per share (+4.09% year to date), you can partake in the modest but ultra-safe 1.45% dividend.
On May 4, 2023, Loblaw announced an unprecedented carbon-free deal, where it will purchase electricity from all-renewable energy sources. Their supermarkets, drugstores, offices, and distribution centres will use wind, sun, and water-generated power. The program is a testament to management’s commitment to reducing carbon emissions.
Long-term growth
Metro is on equal footing with Loblaw in the food and pharmacy industry. The $18.1 billion company is a retailer, franchisor, distributor, manufacturer, and provider of e-commerce services. It has a network of 975 food stores and 645 drugstores. If you invest today, the share price is $77.75 (+4.57% year to date), and the dividend yield is 1.6%.
In the first half of fiscal 2023 (six months that ended March 11, 2023), total sales and net earnings increased 7.4% and 10.9% year over year to $9.22 billion and $445 million. Its president and chief executive officer (CEO) Eric La Flèche said Metro is well positioned to achieve its long-term growth objectives.
Top performer
Performance wise, Premium Brands is doing better than Loblaw, Metro, and the TSX (+6.19%) thus far this year with its 23.11% year-to-date gain. At $100.50 per share, the 3.06% dividend yield is also higher than the industry titans’ offers. Market analysts have a 12-month high price target of $137 (+36.3%).
The $4.5 billion company is into specialty food manufacturing and differentiated food distribution with operations in Canada and the United States. In Q4 and full-year 2022, PBH posted record revenues of $1.63 billion and $6 billion, representing 21.5% and 22.3% increases versus the same periods in 2021.
Total earnings for the year increased 20.6% year over year to $160.1 million. Its president and CEO George Paleologou said, “For 2022, we are very pleased to report our 18th consecutive year of record financial results.” He added that PBH is well positioned to meet its five-year adjusted earnings before interest, taxes, depreciation, and amortization target of $600 million in 2023.
Safety nets
Food stocks are safety nets for risk-averse investors. Take your pick from Loblaw, Metro, or Premium Brands, and sleep easy amid the heightened market volatility.
