Editor’s note: A previous version of this article misstated the dividend yield for Canadian Tire. The mistake has been corrected.
The TSX ended last year with more than double the gains in 2023. While many income-oriented investors were happy with their profits, Canadian Tire (TSX:CTC.A) and TELUS (TSX:T) underperformed due to sector-driven headwinds. However, with inflation down to less than 2% in December, the forgotten dividend giants could rebound in a shifting market.
The consumer discretionary sector is up +0.11%, while communications services have gained +1.08% from year-end 2024. Both companies are strong brands and are known for their profitability. A price upside is inevitable in an improving economic environment.
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Strong earnings growth
Canadian Tire operates in the automotive, hardware, sports, leisure, and housewares sectors. The $8.34 billion retail company delivered strong financial results in the fourth quarter (Q4) and full year 2024. In the three and 12 months ending December 28, 2024, net income climbed 189.9% and 186.6% year over year to $431.7 million and $971.9 million, respectively.
The iconic Canadian retailer is also the largest tenant and controlling unitholder of CT Real Estate Investment Trust. The $3.5 billion REIT owns income-producing commercial properties in Canada with annual rental growth built into long-term leases.
Its president and chief executive officer (CEO), Greg Hicks, notes the strong earnings in Q4 2024 and return to growth while observing improved consumer sentiment and spending. “As we look beyond our ‘Better Connected’ strategy, we have growing evidence and conviction that a deeper connection of our retail banners and our loyalty system drives higher member engagement and sales,” he added.
Canadian Tire executed the “Better Connected” strategy in 2022, modernizing its core retail foundational elements by investing in the business. The transformation of its supply chain network and investments in IT network modernization and resilience are ongoing.
Hicks said the rate-cutting cycle of the Bank of Canada had a distinct positive psychological effect on consumers and believes an economic benefit may follow. The proposed U.S. tariff is a market headwind, although management said the budding consumer optimism could negate the uncertainty.
Still, Canadian Tire is preparing for the 25% tariffs by reviewing its U.S. suppliers and looking for alternatives to insulate customers from inflation pressures due to tariffs. If you invest today ($145.11 per share), the consumer discretionary stock pays a nice 4.9% dividend.
Dividend-growth program
TELUS, Canada’s second-largest telecommunications company, is a screaming buy following its better-than-expected operational and financial results (unaudited) in Q4 2024. In the three months ending December 31, 2024, operating revenues and adjusted net income increased 3.4% and 11.4% to $5.33 billion and $380 million compared to Q4 2023.
Its president and CEO, Darren Entwistle, said, “Through our premier asset portfolio and unwavering commitment to cost efficiency, we delivered strong, profitable growth to close out 2024, momentum we intend to build upon in 2025.” The Mobility and Fixed customer additions of 1,216,000 for the entire year represent the third consecutive year of net additions above one million.
According to Entwistle, TELUS’s sustainable multi-year dividend-growth program is in its 15th year. At $21.64 per share (+11.03% year to date), the 5G stock pays a juicy 7.7% dividend.
Business turnaround
Expect Canadian Tire and TELUS to rise as the respective businesses turn around. There will be headwinds along the way, although 2025 should be a better year performance-wise.
