What are we looking for?
Sustainable dividends from North American gas station giants embracing electric vehicle charging.
The screen
This week, the federal government confirmed that the writing is on the wall for gas stations: all new passenger cars, trucks and SUVs sold in this country must be zero-emission vehicles by 2035. The target is ambitious, considering the electric vehicle (EV) charging network is already struggling to meet demand.
Still, the need for that infrastructure, both here in Canada and the United States, which faces a similar deadline, could benefit legacy gas station owners as well as their investors.
Those retailers are actively expanding their traditional offerings – gasoline, snacks and drinks – to include EV charging stations. Environmentalists welcome the move as key to winning the wholesale shift to EVs.
For the gas stations themselves, the move has the potential to increase same-store sales for their convenience stores as EV drivers buy food and drink and other high-profit-margin goods while waiting for vehicles to charge.
Our search started with companies in Canada and the U.S. that already offer charging station access. Note: we’ve steered clear of pure-play EV charging stocks given the higher-risk exposure for investors. Indeed, we think income-oriented investors benefit most from EV charging providers that also have a strong existing base of business, such as gas stations. Looking at dividend payers with high-growth prospects and existing profitability, we then applied our TSI Dividend Sustainability Rating System, which awards points to a stock based on key factors:
- One point for five years of continuous dividend payments – two points for more than five;
- Two points if it has raised the payment in the past five years;
- One point for management’s commitment to dividends;
- One point for operating in non-cyclical industries;
- One point for limited exposure to foreign currency rates and freedom from political interference;
- Two points for a strong balance sheet, including manageable debt and adequate cash;
- Two points for a long-term record of positive earnings and cash flow to cover dividends;
- One point if the company is an industry leader.
Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.
More about TSI Network
TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated five stocks. Convenience-store leader Alimentation Couche-Tard Inc., ATD-T headquartered in Laval, Que., is steadily installing EV chargers in North America. That builds on its current charger network in Europe, including Norway, the country with the highest rate of EV adoption in the world.
Calgary-based Parkland Corp. PKI-T is an international fuel distributor and retailer with operations in 25 countries. This includes its Canadian gas stations operating under the Ultramar, Esso, Chevron, Pioneer and Fas Gas banners. Its associated food and convenience store brands are On the Run and Marché Express. Parkland’s existing EV charging network is focused for now on B.C., which has the highest proportion of EV drivers in North America.
Casey’s General Stores Inc., CASY-Q headquartered in Ankeny, Iowa, operates convenience stores in Iowa, Missouri, Illinois and 13 other Midwestern states. Its stores sell gasoline, and food and drink (including beer), along with other non-food items. Casey’s continues to expand its EV charging network across its network.
Based in Arkansas, Murphy USA Inc. MUSA-N operates a chain of gas stations and convenience stores throughout 27 U.S. states. Notably, the majority of its stores are located close to a Walmart, which helps drive business. Murphy continues its rollout of EV chargers across its own retail network.
And finally, Phillips 66 PSX-N, based in Houston, is a major petroleum refiner that owns and operates gas stations and convenience stores and an increasing number of EV charging stations.
Note that the meagre dividend yields of Alimentation Couche-Tard, Casey’s General Stores and Murphy USA reflect their rapid share price rise over 2023.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
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Scott Clayton