Canadian Tire (TSX:CTC.A) inventory has climbed about 20% yr so far. That’s a giant rally in comparison with the 10-year Canadian inventory market return of about 8.8% as a reference. Is it a purchase at present?

First, let’s discover potential causes the inventory is up a lot.

Valuation growth

The inventory of the specialty retailer was down 22% final yr. On the finish of 2022, it traded at a low valuation of about 7.6 occasions adjusted earnings at about $140 per share. It’s pure that buyers would bid up a strong inventory when it trades too cheaply.

For reference, Canadian Tire elevated its adjusted earnings per share at a compound annual development price (CAGR) of about 11.6% over the previous 10 years. And its long-term regular valuation is about 12.7 occasions adjusted earnings. At $169 and alter per share, the retail inventory trades at a a number of of 9.1. This means the inventory trades at a reduction of about 28%.

Some latest information that could possibly be the most recent contributors to this rally embody its continued partnership with Petco and releasing steady earnings outcomes for 2022.

Continued Petco partnership

In the course of this month, Canadian Tire “introduced its continued growth of Petco shop-in-shops throughout the nation via its unique partnership with Petco Well being and Wellness.” The press launch defined, “this funding permits CTC to additional faucet into Canada’s $5.3 billion pet market… Petco shop-in-shops at the moment are featured in over 80% of Canadian Tire shops and are deliberate to develop to 90% by this summer season.”

Since 60% of Canadian households are dwelling to a household cat or canine, this partnership will help drive repeat foot site visitors to Canadian Tire shops. “Since partnering with Petco in 2018, we now have seen double-digit development on this class with a marked improve in prospects buying the pet class for the primary time.”

Secure 2022 outcomes

For the fourth quarter (This fall) of 2022, Canadian Tire noticed retail income rising 3.3% yr over yr. Excluding petroleum, the income development was 2.3%. Normalized diluted earnings per share (EPS) climbed 11% versus This fall 2021.

For the full-year 2022, the Canadian retailer’s normalized diluted EPS marginally declined by lower than 1%. Final yr, the corporate witnessed large improve in EPS. Placing it in perspective, its EPS elevated it a CAGR of virtually 12% over the previous 5 years.

Persistent dividend development

One other side that retains buyers to the inventory is its persistent dividend development. Administration seems dedicated to paying a rising dividend. The Canadian retail inventory has elevated its dividend for 12 consecutive years with a 10-year dividend-growth price of 17.2%. Its final dividend hike of 6.2% was in December. Its 2022 payout ratio was sustainable at about 31%. So, buyers can count on extra wholesome dividend will increase sooner or later.

Investor takeaway

Canadian Tire is a retailer will strong long-term outcomes. It has an investment-grade S&P credit standing of BBB. On condition that the dividend inventory trades at a reduction and gives a rising dividend that at the moment yields near 4.1%, it’s a very good purchase. That mentioned, after the latest rally, it’d expertise a pullback on profit-taking, which ought to be seen as a stronger shopping for alternative for long-term buyers.