One of my favorite Canadian companies that isn’t involved in the financial sector is Shoppers Drug Mart (SC.TO).
Shoppers recently announced that 4th Quarter profit jumped 16% over last year and followed that up with a dividend increase of 34.4% to boot.
While some thought that a mild cold and flue season this past fall would hurt sales, the numbers proved otherwise and Shoppers bounced off a 52-week low in the morning session to finish up over 4% on the day.
I recently talked about trying to recession proof a portfolio and that is something that is typically an issue with retail stocks. That said, I wondered how Shoppers was positioned to battle a recession from the United States, should th effects leak into Canada. This is what Shoppers’ CEO, Jurgen Schreiber, said on the issue:
“We have a significant amount of categories which are relatively independent from recessions,” he said, naming the pharmacy and over-the-counter medications, as well as cosmetics.
Shoppers Drug Mart will hold its own as defensive stock with a Beta of 0.54, making it about half as volatile as the market. And as one Analyst reported, they are sticking to what they know they can do well.
“They are in a business that is fairly resistant to any economic troubles,” said Aman Budhwar, senior investment analyst at AIC, whose fund holds more than 1 per cent of Shoppers’ outstanding shares. “The economic picture hasn’t impacted them as much as some other retailers. The company continues to do what they’ve done well in the past – they’re not trying anything fancy.”
The company also provides a dividend yield that is double the industry standard, while maintaining a relatively low payout ratio of ~27%. A higher than average dividend yield, coupled with a relatively low payout ratio should enable Shoppers to consistently create shareholder value while continuing to expand the company.
The technical picture for Shoppers Drug Mart isn’t exactly pretty. However, if you were waiting for a good chance to purchase an initial position in this stock then now might be as good a time as any.
There appears to be some long-term support at around $48.00; a price that held up with some strong volume support as shown in the chart below.
Long term buy and hold investors may see some upside resistance between $51.00 and $53.00, but most analysts are showing a target price well above that range given the recent performance of the company and the hefty plans for expansion.
I mentioned a few weeks ago about going shopping on the 52-week low list and these are the types of deals that you should be looking for. Assuming you require this type of stock to balance out your portfolio allocation.
What’s on your shopping list?