Thursday, February 11, 2010

Shoppers Drug will be ok

Well back in the summer I exclaimed Shoppers Drug Mart should increase their dividend! They did just that today as they hiked their payout 5%. Apparently this was in line with their earnings growth this year and makes their pay out ratio of 33% 'sector leading'. That is a higher pay out ratio than US chain Walgreen (WAG), which we own, at 27%, however WAG increased their dividend by 22% in 2009.

Shoppers Drug Mart's earnings growth has been slowing over the past few years however I fully expect them to return to double digit earnings growth in the next few years. They run an excellent business, their new stores are very well located and laid out, and they are in the sweet spot of demographic trends in Canada. More of us popping pills, trying to look younger, and getting lazy about big box stores will help this chain succeed going forward. While Shoppers is currently languishing because of an unresolved Ontario government issue and weaker earnings performance recently, I believe they will pull through this to be a part of the future of dividend growth in Canadian investments. I would consider anywhere south of the current level to be a reasonable entry point for the stock. At a P/E of 13-15x the stock looks like pretty good value considering their market position and potential earnings growth ahead.


Think Dividends said...

Shoppers Looks Cheap
Investors looking for high-quality laggards should find Shopper’s combination of earnings growth and valuation compelling. Shoppers no longer sports a premium valuation and is trading in-line with U.S.-based Walgreens (WAG).

"We believe that even under worse-case scenarios, SC should trade at a multiple no lower than WAG, a company which SC is superior to in many ways." --- Perry Caicco, CIBC World Markets


Anonymous said...

I think shoppers has run its course guys, the premium cost they charge and remake towards higher end goods has run well and far, but at a certain point cant carry them further.

Still a good company, but growth is tough.