CCL Industries stock Archives

Ah, forever stocks! I love them. Here I present nine stocks I include in my Canadian Forever Stock Selection and briefly explain why. A forever stock is one I’d buy for the long haul, 10+ years. It offers reliable growth and is so solid and resilient that I can forget about it and sleep soundly.

Let’s be clear, my selections aren’t based on timing; I’m not saying that they are great buys right now, but rather that I’d buy any of them and that, if I couldn’t monitor them quarterly as I do, I wouldn’t worry.

Forever stocks share several of these qualities:

Diversification
Market leaders
Economies of scale
Predictable cash flow
Stable and/or sticky business model
Essential products / services
Multiple growth vectors
Long dividend growth history

This list is partial; clearly, there are other contenders that could be on it. I have covered this part more in-depth on The Dividend Guy Blog.

Telus (T.TO / TU) – Communication Services

The competition chases media, while Telus pursues technology improvements, like AI use in healthcare and agriculture. With our aging population, healthcare technology will be in high demand. The same is true for farmers optimizing their land use while facing the effects of climate change among other headwinds. Strong in the wireless industry. Telus uses its extra cash to diversify. Customers can cut cable, but not healthcare or food.

While there are concerns about its debt level, I expect it is a short-term problem; Telus has recently increased cash flow from operations, and its massive investments in wireless infrastructure and its other growth projects will generate more cash flow.

Magna International (MG.TO / MGA) – Consumer Discretionary

I hesitated over Canadian Tire, but the future of retail isn’t as evident as the need for transportation. Whether our cars run on fuel, electricity, or levitate, Magna will manufacture parts for car makers. MG’ size and scale enables it to partner-up, design, and produce parts for the largest car markers. Having joint business with manufacturers makes MG essential to the auto industry.

Magna doesn’t look like a winner right now with its squeezed margins since the chain supply disruptions started in 2021. I believe it’s a winner for the long run due to its deep connection with major car makers.

Alimentation Couche-Tard (ATD.TO) – Consumer Staples

Grocers could be good choices, but I worry about their growth potential in light of the competition and pressure their margins will face in the coming years. Canada’s low population density makes it difficult to increase revenue with new stores and maintain margin; transportation cost eats some of the revenue increases.

Alimentation Couche-Tard has a unique business model and an uncanny ability to adapt. Ten years ago, ATD was a growth by acquisition machine counting on fuel sales to boost income. Its management team never writes cheques carelessly, preferring to walk away from bad deals. A decade ago, it bought Statoil Fuel & Retail. This allowed ATD to gain insight into the behavior of electrical vehicle owners, convincing it of its network’s suitability to an electrifying world.

ATD shows a great mix of organic growth and acquisitions. What’s not to love?

Alimentation Couche-Tard dividend triangle shows sustained revenue, EPS and dividend growth over 10 years — ATD.TO revenue, EPS, and dividend evolution

Canadian Natural Resources (CNQ.TO / CNQ) – Energy

A while back, I would have selected Enbridge or TC Energy because pipelines are amazing; they get paid no matter what happens in the markets. However, with rising alarm about fossil fuel emissions, regulators, inflation, labor shortage and high interest rates, trouble is brewing.

One company truly impressed during the 2020 oil crash, Canadian National Resources. While Suncor cut its dividend under these dark skies, CNQ increased theirs!

CNQ proved its long-held claim: it has the most diversified and durable energy portfolio. With this unique asset mix, it manages production according to changes in commodity prices, like having unlimited food you sell when prices are at their highest and keep for yourself when prices are down.

With over 20 years of consecutive dividend growth, even during the toughest times in the industry, CNQ deserves praise, and maybe a place in our portfolio.

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Canadian National Railway (CNR.TO) – Industrials

Many candidates in this sector, but nothing as boring and steady as railroads. I chose CNR over CP due to its long dividend growth history. CNR is the largest Canadian railroad operator, nobody can replicate its asset base. This barrier to entry is impenetrable and the need to transport goods won’t slow down. Canada is known for its resources, CNR is known to be able to move them. A match made in heaven.

Constellation Software (CSU.TO) – Information Technology

In the tiny list of Canadian tech companies with robust growth, Constellation Software isn’t showing any signs of slowing down. OK, not a dividend payer, yielding 0.2% without recent increases; I picked it for its impressive list of acquisitions. CSU manages hundreds of niche software companies, as its well-chosen name reflects! How it approaches acquisitions and selects targets is remarkable. As CSU itself puts it: “We buy Good vertical market software companies. Now and again, we buy an Exceptional company.”

Constellation Software's dividend triangle showing robust revenue and EPS growth and a flat dividend — CSU.TO – Robust growth in revenue and earnings, but not a dividend payer

CCL Industries (CCL.B.TO) – Materials

This one should get more attention! CCL is the world’s largest producer of pressure-sensitive and specialty extruded film materials. We’re talking about labels and foil tapes (think post-its on steroids). I’ve recently posted a detailed article covering CCL; read it here.

Granite (GRT.UN.TO) – Real Estate

One of the first industrial REITs in specialized industrial properties and high tech, Granite has an impressive long term development plan. After being spun-off by Magna International in 2003, Granite diversified. While Magna remains its largest tenant, GRT focuses mostly on distribution and e-commerce properties, where Amazon is its largest tenant.

With a low FFO payout ratio, shareholders enjoy a 3.5%+ yield that should grow to match or beat inflation . Also, it’s a rare REIT showing AFFO/unit growth while issuing new units.

Utilities – Fortis (FTS.TO / FTS)

Among several great utilities in Canada, Fortis is the most boring and stable. Its impressive portfolio includes 10 regulated utility assets focused on energy transmission and distribution, mainly electric and gas. Fortis manages them with impeccable results quarter after quarter. Tight management limits operating costs growth, while FTS passes most of the inflation to customers. Dividend growth for 49 consecutive years, no hints of slowing down (dividend growth projected at 6%) prove FTS is an all-weather company.

If you’re looking for a strong Canadian stock in the materials sector to add to your buy list, take a look at CCL Industries. The world’s largest producer of pressure-sensitive and specialty extruded film materials, CCL offers products and solutions to address decorative, packaging and labelling, security, loss prevention, and inventory management needs.

A global presence, CCL employs over 25,000 people in 200 production facilities in 43 countries. Its revenues come from North America (41%), Europe (32%), and Emerging Markets (27%).

CCL Business Model

Operating through four segments, CCL Industries sells its solutions to global corporations, government institutions, small businesses, and consumers.

The CCL segment converts pressure sensitive and specialty extruded film materials for a range of decorative, instructional, functional and security applications.
The Avery segment supplies labels, specialty converted media and software solutions.
The Checkpoint segment develops radio frequency (RF) and radio frequency identification (RFID) based technology systems for loss prevention and inventory management applications, and labeling and tagging solutions, for the retail and apparel industries.
The Innovia segment produces specialty and layered surface engineered films for label, packaging, and security applications.

Investment Thesis

An international leader with a well-diversified business that is based in Canada is a rare find. With its 2013 major acquisition of business units from Avery, the world’s largest label producer, the company set the tone for several years of growth. Bolstered by its earlier success, CCL also bought Checkpoint and Innovia, and it keeps making more acquisitions.

CCL is still able to generate organic growth (roughly 4-5%) on top of its growth through acquisitions. You can rest assured that management’s interests are aligned with yours since the Lang family still owns 95% of CCL’s A shares with voting rights. We appreciate CCL’s capital allocation that includes a mix of dividend, share buybacks, acquisitions, and CAPEX. With its attractive PE ratio, CCL can generate more growth through acquisitions.

CCL’s Last Quarter and Recent Activities

CCL reported a strong first quarter in 2023; revenue up 9% and EPS up 12%, with organic growth of 1.4%, acquisition-related growth of 3% and a 4.2% positive impact from foreign currency translation. Sometimes, doing business across the world works out! By segment, CCL sales were up 7.5%, Avery was up 44%, Checkpoint was up 3.6%, and Innovia was down 14%. In constant currency, the company saw high single-digit growth for revenue and earnings. It is looking good for the rest of the year!

In less than 30 days, in June and July 2023, CCL made three small acquisitions:

It bought Pouch Partners for $44M in an all-cash deal. Pouch Partners supplies highly specialized, gravure printed & laminated, flexible film materials for pouch forming, including recyclable solutions, with sales of $104M in 2022.
It announced the acquisition of Oomph Made for $7.1M. CCL said Oomph had sales of C$6.7M in 2022. This adds to Avery’s growing portfolio of access control, badging and credentials technologies, products, and brands focused on the retail, hospitality, live events, and conferencing markets.
It bought privately held Creaprint S.L., a specialist producer of In Mould Labelling (IML) with sales of $17M in 2022, for a debt and cash-free purchase consideration of $38.1M. This acquisition brings IML technology and expertise to global CCL Label operations.

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Potential Risks for CCL.B.TO

We often see rising stars such as CCL yielding a high return over a short period. In 2014, the stock traded at approximately $15, steadily rising to $62 in 2017, peaking at $72 in 2021, and now around the $66 mark. CCL is a leader in many sectors, but double-digit growth will be hard to achieve going forward.

The possibility of a recession is affecting investor interest for this stock. CCL used leverage for its acquisitions many times in the past few years. Further acquisitions to support growth might be riskier as many expect a global economic slowdown. CCL also faces inflation headwinds as the cost of raw materials continues to rise.

CCL.B.TO Dividend Growth Perspective

CCL shows a nearly perfect dividend triangle over the past 5 years, with strong revenue and dividend growth. However, earnings are beginning to slow down.

CCL’s business model is built on repeat orders generating consistent cash flows. With their low payout ratios, investors can expect dividend growth for many years. After a smaller increase in 2020, CCL roared back with yearly dividend increases of 17%, 14%, and 10.4% from 2021 to 2023. It will be interesting to see how CCL will grow its payouts going forward with EPS not growing as fast. With a payout ratio of 25% and a cash payout ratio of 35%, there is nothing to worry about.

Final Thoughts on CCL.B.TO

I look at CCL.B.TO as an educated guess; it’s almost perfect but I expect price fluctuations and I know the risks. As it operates in the cyclical materials sector, CCL faces potential headwinds from a looming recession and increased raw material prices. That being said, the dividend is safe, and the company can sustain dividend growth for several years.

If you are looking for a company focused on growth by acquisition, and you can live with fluctuations in this uncertain economic environment, CCL might be for you. Or you can keep CCL on your watch list while you wait to see how the economy evolves over the next months and quarters.