Alimentation Couche-Tard Inc.: Huge Dividend Growth Potential Ahead

When thinking about growth stocks in Canada, one of the first names to come to mind is Alimentation Couche-Tard Inc. (TSX:ATD.B), which has grown to be the North America’s largest owner and operator of convenience stores. It also has a sizeable presence in Europe and Asia. Altogether, it has more than 12,000 stores.

The company has been able to differentiate itself by doing a terrific job consolidating a fragmented market. It’s also one of the best operators out there, drawing in traffic by offering competitive prices on staple items and making prepared food items which are higher quality than we’re used to seeing at convenience stores.

Since 2010, the company has grown gross profit by 16% annually, EBITDA by 24% annually, and free cash flow by 25% annually.

And with many acquisition opportunities still available – including from cash-strapped oil producers looking to raise cash by selling their convenience stores – investors believe the growth can continue.

There’s just one problem, at least for dividend investors. Couche-Tard pays a paltry $0.09 per share quarterly dividend, good enough for a 0.56% yield. That’s not very exciting.

The dividend growth potential is much more tantalizing. The company generated $2.74 per share in earnings over the last 12 months. It paid out $0.335 in dividends during that time, giving it a payout ratio of just 12.2%.

Even if earnings don’t cooperate – which is unlikely – Couche-Tard can still hike its dividend substantially going forward and have a reasonable payout ratio.

Investors can expect Couche-Tard’s dividend to increase by a minimum of 10% a year for the foreseeable future, perhaps even more.