The yield not worth the poor returns … Just buy in index

WN - George Weston Limited

George Weston is a leading food processing and distribution company in Canada. The company also has interest in the real estate business with 2019 being the first full year of its direct ownership in Choice Properties. 

George Weston has transformed into a more balanced portfolio with three complementary businesses in retail, real estate, and consumer goods. All of its businesses are leaders in their respective areas. Its three reportable operating segments are Loblaw Companies Ltd. (~93% of total company sales in 2109), Choice Properties REIT (~3%), and Weston Foods (~4%). Loblaw remains the market leader with more than 2,400 stores and an offering of over 10,000 private label products, while Choice Properties is one of Canada’s leading diversified REIT with 726 properties totalling nearly 66 million square feet of retail, industrial, office, and residential assets, in the country’s largest markets. Weston Foods is a leader in commercial bread, artisan, and donuts. Some of its well-known retail brands include Loblaw, Shoppers Drug Mart, Valu-Mart, No Name, Maxi, and Provigo.

Investment Data

Revenue Growth & Market Exposure

With nearly 140 years of experience, George Weston continues to evolve and meet its customers’ demands. Its diversified businesses cater to a wide spectrum of customer needs, ranging from food, grocery, pharmacy, health, and beauty, to general merchandise, financial services, and real estate. Given a leading reputation in the consumer industry, George Weston is known for offering a wide range of products and premium quality. The company has built a solid foothold that has resulted in a large base of loyal customers. It has firmly established strong goodwill and trust among its customers. 

George Weston is also investing aggressively in technology to ward off online competition. Weston Foods is undergoing a major transformation embracing a leaner organization structure and is on its way to becoming North America’s premier bakery focusing on brand development, low operating costs, and maintaining a broad customer base while Loblaw is concentrating on food retailing with the objective of providing Canadian consumers the best one-stop shopping experience for everyday household needs. George Weston seeks long-term, stable growth in its business through continuous capital investment. As a result of the company’s decade long investment in systems and infrastructure, its e-commerce business has also picked momentum.

George Weston witnessed rising demand in its retail and consumer goods businesses, as sales of essential items surged in response to stockpiling due to the COVID-19 pandemic. It, however, suffered from declining sales of non-essential goods and services, and deteriorating financial health of tenants as governments announced mandatory closures of nonessential businesses. An increase in base rent and operating cost recoveries from existing properties and new acquisitions led to nominal revenue growth of 0.6% at Choice Properties. However, market price fluctuations of the trust units had an adverse effect on George Weston’s results.

Dividends

George Weston is a Canadian Dividend Aristocrat with a long-standing history of paying dividends. The company has also been growing its dividend and has registered a dividend growth rate of 6% CAGR over the last three years. George Weston last increased its dividends by 1.9% and currently has a dividend yield of 2.2% and a very low dividend payout ratio of 25%. 

With the addition of Choice Properties to the portfolio, George Weston became more balanced, with three strong and well-positioned businesses in retail, real estate, and consumer goods. George Weston should benefit from the REIT’s stable cash flow and NOI growth. George Weston is targeting to add $100 million to EBITDA as a result of its multi-year transformation program. It achieved an increase of $230 million in FY2019 EBITDA due to improvements in Loblaw Retail and Choice Properties driven by the acquisition of CREIT. George Weston’s strategy of acquiring companies with solid management should go a long way in creating long term shareholders’ wealth. 

Lower inventory balances and income taxes resulted in higher cash earnings in the most recent quarter. The increase in cash flows from operating activities was also driven by a significant sell-through of inventory due to COVID-19. The company should benefit from rising demand for grocery and pharmacy products at Loblaw, as consumers choose to stay indoors. It is also well-positioned to increase its presence in the real estate market on the back of the successful integration of Choice Properties. George Weston’s well-diversified businesses and large exposure to Loblaw should make its dividends reasonably safe. 

Competition

George Weston operates in highly competitive industries. The company is facing competition not only from the traditional brick and mortar stores but also from online players. George Weston is expanding online shopping as well as delivery options as it faces acute pressure from e-commerce players. Loblaw itself competes against a wide range of retailers including supermarket and drug store operators, mass merchandisers, discount, convenience and specialty stores, etc. Weston Foods’ competes with multinational food processing companies, as well as domestic bakery stores in North America. Metro Inc., Sobeys, Walmart, Costco, Amazon.com are the leading competition for the company.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYield RawYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:ATD.BATD.BAlimentation Couche-Tard Inc.Consumer DefensiveGrocery Stores0.6443.2948.1415.2519.452.840.00650.650.098640.280.162685Consumable - NecessitiesYESYESYESNOCanada1
TSE:LLLoblawConsumer DefensiveGrocery Stores0.5266.7123.8721.9619.453.040.01891.890.414541.260.058646Consumable - NecessitiesNONOYESNOCanada1
TSE:WNWNGeorge Weston LimitedConsumer DefensiveGrocery Stores0.5799.3015.2612.1219.458.190.02112.110.256442.100.058647Consumable - NecessitiesNONOYESNOCanada1
TSE:MRUMRUMetroConsumer DefensiveGrocery Stores0.6056.0714.1419.4719.452.880.01611.610.312540.900.158475Consumable - NecessitiesYESYESYESNOCanada1
TSE:DOLDOLDollarama IncConsumer DefensiveDiscount Stores0.5045.3914.0926.2419.451.730.00390.390.101740.180.102474Consumable - DiscretionaryNONOYESNOCanada1
TSE:EMP.AEMP.AEmpire Co Ltd A NvtgConsumer DefensiveGrocery Stores0.5333.308.9615.4919.452.150.01561.560.241940.520.047947Consumable - NecessitiesNOYESYESNOCanada1
TSE:NWCNWCThe North West Company Inc.Consumer DefensiveGrocery Stores0.4330.511.5021.8719.451.390.04334.330.949641.320.043346Consumable - NecessitiesNONOYESNOCanada1

Bottom Line

A consumer-defensive business model, strong cash flows, and growing dividends make Geroge Weston a good choice for long term investors. As a leading food retailing company in Canada, George Weston should benefit from its well-recognized brands, large presence, and ongoing investments. The company should continue its dividend growth streak in the future on the back of a regular stream of cash flow from a consumer defensive business and ongoing investments.

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DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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