And now for something completely different, dividend-wise.
As pleased as I am with the returns of the stocks I typically feature in Yield Hog – utilities, pipelines, banks and other companies with relatively high and growing dividends – there is another subset of dividend payers that have done even better.
Let's call them the diminutive dividend darlings.
These companies have yields that many investors would consider laughably small. Yet, their share prices (and, to a lesser extent, their dividends) have been climbing at a rapid pace, producing total returns that have crushed traditional dividend stocks.
Today, we'll look at three diminutive dividend stocks that have produced dynamite results. I don't own any of these stocks personally – except through exchange-traded funds – but they're high on the "buy" lists of many analysts.
If these companies are so successful, why are their yields so stingy? For one thing, they are growth-oriented companies that plow a lot of cash back into their businesses to fuel expansion. For another, their shares trade at high price-to-earnings multiples, which keeps their yields low.
A word of caution: High-growth stocks with above-average P/Es have a lot of bullish expectations baked into their share prices. If growth unexpectedly slows, they could sell off in a hurry. But if earnings continue to shine, they could keep delivering the stellar returns investors have come to expect.
Dollarama (DOL)
Price: $164.80
Yield: 0.3 per cent
Dollarama's annualized dividend of 44 cents a share won't even buy you a pack of gum at the checkout line. But investors who put up with the puny yield have been richly rewarded: The stock has posted a five-year total return of 422 per cent, or about 39.1 per cent on an annualized basis. (All total returns are for the five years ended Nov. 27 and assume dividends were reinvested.) And there is more where that came from, according to analysts who cite the retailer's consistent same-store sales growth, excellent profit margins and expanding selection of higher-priced items.
Another plus is Dollarama's insulation from online competition that is hampering other bricks-and-mortar retailers. Dollarama "continues to pull ahead of the pack in our universe of coverage, reflecting unique, defensive characteristics coupled with a strong growth profile and price positioning that make it far less vulnerable to e-commerce disruption," RBC Dominion Securities analyst Irene Nattel said in a recent note. She reiterated her "outperform" rating and hiked her price target by about 13 per cent to $161 (a level the stock has already blown past). Ms. Nattel noted that Montreal-based Dollarama typically delivers earnings that are above forecasts and said the stock's recent strength may also reflect anticipation of an online bulk buying program that will target customers who purchase items in large quantities.
Dollarama is scheduled to report third-quarter results on Dec. 6, and analysts are expecting earnings per share of $1.09, up 18.5 per cent from a year earlier. With the shares trading at about 37 times estimated earnings of $4.45 on projected sales of $3.29-billion for the fiscal year ending in January, the market is evidently counting on not just a strong third quarter, but many more excellent quarters to come.
Premium Brands Holdings (PBH)
Price: $106.77
Yield: 1.6 per cent
If you're hungry for dividends, Premium Brands' modest yield barely qualifies as an appetizer. But if you're craving big returns, the specialty food producer and distributor has hit the spot: Over the past five years, the shares have posted a total return of 642 per cent, or about 49.3 per cent on an annualized basis. With a voracious appetite for acquisitions, the Vancouver-based company has built an empire of dozens of specialty food producers and distribution businesses that sell everything from burgers and deli meats to seafood and beef jerky.
This month, the company took a big bite of the U.S. sandwich market, acquiring Minnesota-based Buddy's Kitchen, which makes sandwiches and prepared meals for airlines and convenience stores, and Raybern Foods, which supplies frozen and refrigerated sandwiches and wraps to the U.S. retail market. These acquisitions complement a 212,000-square-foot sandwich production facility that Premium Brands recently opened in Phoenix.
"The company has become a sandwich powerhouse," PI Financial analyst Bob Gibson said in a recent note in which he reiterated a "buy" rating on the shares and raised his 12-month price target to $115 from $112.
Premium Brands recently reported record third-quarter adjusted earnings of 78 cents a share – excluding plant startup costs and other one-time items – which was up 6.8 per cent from a year earlier. Based on full-year 2017 estimated earnings of $3.23 a share on projected revenue of $2.24-billion, the stock trades at a P/E of about 33. Investors are betting that Premium Brands' eating spree is far from over.
Boyd Group Income Fund (BYD.UN)
Price: $96.60
Yield: 0.5 per cent
Fender bender? Cracked windshield? Your loss is Boyd Group's gain.
The Winnipeg-based company, which started in 1990 with a single auto body shop, has grown to about 500 collision repair centres across five provinces and 21 U.S. states – under the Boyd, Gerber and Assured brand names. That makes it the largest non-franchised operator in the fragmented $36-billion (U.S.) North American auto collision business. Given Boyd Group's skill at acquiring mom-and-pop shops and small chains and integrating them into its expanding network, it's probably no, er, accident that the stock has been on a multiyear roll.
The company, which is also a major player in the auto glass business, has produced a total return of 519 per cent over the past five years, or about 43.9 per cent on an annualized basis. Boyd Group is coming off a challenging third quarter when earnings missed estimates, largely because of hurricane-related disruptions, but analysts see plenty of room for growth as the company aims to double its business in the five-year period ending in 2020.
"We expect a steady stream of store additions to continue, both in the U.S. and Canada," RBC Dominion Securities analyst Steve Arthur, who rates the shares "sector perform" with a price target of $103, said in a recent note.
However, with shares trading at a multiple of about 26 times estimated 2018 earnings, he sees "the risk of multiple compression as investors adapt to the new norm of lower (though still impressive) growth." Another risk to consider: The proliferation of vehicle collision-avoidance systems could slow business for repair shops.