A Rare Combo: Cheap, Profitable, and Growing

Dollarama (TSX:DOL) has been one of the most successful investments in Canadian capital markets history.

Since its 2009 IPO through the end of Q2 2025, the stock is up a mind-blowing 6,194.35% (assuming reinvested dividends). That works out to more than 30% per year, which is enough to turn a $10,000 initial investment into something worth $629,676.

Not bad. Not bad at all.

Dollarama is a terrific business. It offers some of the highest margins of any retailer on the planet. It has terrific growth potential even still, with potentially hundreds of new stores in Canada alone, never mind its operations in LATAM — or its upcoming Australian acquisition. Plus, it has shown the market it can increase prices and same-store sales, which extracts even better returns on existing assets.

The company also has a history of steadily increasing dividends, consistently repurchasing its shares, and it boasts a solid balance sheet — which helps fund the chain’s relentless expansion.

The only problem? Dollarama shares are expensive. As I type this, they currently change hands for more than 40x forward earnings, which is flirting with the highest valuation in years. Shares are also significantly more expensive than they were even a year or two ago, when they traded for closer to 25x earnings.

I’m still a bull — and still own shares — but this is the kind of situation that makes me pause.

The good news is I’ve found an alternate solution. There’s a similar business in the UK that trades for a fraction of Dollarama’s valuation. It also pays a massive dividend.

That company is B&M European Value Retail (LSE:BME), and it’s quite interesting. Let’s take a closer look.

The skinny

B&M European Value Retail consists of two similar businesses.

The first is the B&M chain of variety stores. These can be found in both the United Kingdom and France, with the majority of locations in the UK. These stores very much resemble a dollar store, selling things like a selection of grocery items, toiletries, general merchandise, cleaning supplies, and the like. The company also owns Heron Foods, a small-format supermarket chain that is concentrated in the Northern part of England.

The company was originally founded in 1978 with the first store opening in Blackpool. Growth was relatively slow for the first couple of decades, and the chain was acquired by Phildrew Investments in 2004. It had a mere 21 stores then, but Phildrew saw the potential and accelerated growth. By 2012, the company had 300 stores across the UK.

Phildrew sold a big chunk of its position to private equity firm Clayton, Dubilier, and Rice in 2013, and B&M then listed on the London Stock Exchange in 2014. It kept growing the B&M brand in the UK, but also acquired Heron Foods in 2017 and the Babou chain of variety stores in France in 2018. The latter was later rebranded as B&M France.

These days the company boasts 865 B&M locations, spread across the UK and France. Heron Foods has expanded to 335 stores.

Let’s talk a little more about each of the businesses, starting with Heron Foods. B&M is the real star here, so we’ll get Heron out of the way first.

Heron Foods locations are kind of a hybrid between grocery and convenience. They average about 3,000 square feet, which puts them strictly in the convenience category. They have a decent selection of fresh foods, too. Mostly they’re a discount chain with a fairly limited selection, but sharp prices on what they do carry.

The rest of the store resembles a convenience store, with a heavy offering of junk food. Heron used to dedicate a fairly large area to frozen foods, but has cut that down somewhat. What they found was they didn’t lose any frozen sales if they aggressively kept the smaller frozen area full, and overall sales went up because the vacated frozen area delivered additional sales.

Heron offers a few advantages that don’t normally get talked about. By adding Heron to the mix, the entire company can get better pricing from suppliers who are keen to negotiate deals for better shelf placements in both B&M and Heron stores. The company can also use Heron as a place to discount and get rid of excess inventory that isn’t selling as quickly as needed at B&M stores.

Here’s a map that shows Heron’s locations. You can see it really hasn’t gone any further south than Birmingham. I see long-term growth potential as it continues to move south.

One negative about Heron Foods is the northern part of England is one of the poorer parts of the country. The UK has a north-south divide that pundits talk about often. The London and south of London areas are doing well, while the rest of the country isn’t. Therefore, investors aren’t super excited about a chain of convenience stores in the northern part of the nation.

Oh the other hand, I think the discount angle is the smart play. Especially for a region without many high income earners.

Additionally, Heron isn’t growing particularly fast. It only opened eight new locations in fiscal 2025. B&M, meanwhile, opened up 36 stores in the UK alone, and an additional 11 in France.

Let’s talk about B&M next. The company calls these variety stores, but they so resemble a Dollarama that we could easily call them dollar stores and it would be mostly accurate. There are a few higher-priced items here — including seasonal stuff — but the vast majority of items have low price points, sell quickly, and enjoy nice margins.

B&M’s growth has traditionally come from three different sources. The most obvious one is increasing the store count. That has gone up by 30-40 stores annually on a fairly consistently basis since COVID, and looks poised to continue at about that pace in 2026. Secondly, the company has had success increasing same-store sales — although that hasn’t been the case lately. And finally, margins have crept up higher over the years, with gross margins increasing from 34.5% in 2016 to 37.6% in 2025. Dollarama still enjoys higher gross margins (they recently increased to the 45% range), but B&M stacks up well versus U.S. dollar store chains. They tend to have gross margins in the low-30% range.

We’ll also note that I’m talking margin for the whole company. Heron offers worse margins than the rest of the company. In fiscal 2025 the entire company did EBITDA margins of 11%. Heron’s EBITDA margins were about half, or 5.5%. If Heron didn’t exist, B&M would’ve done 12% EBITDA margins.

B&M has grown considerably over the last decade. The top line increased from just over £2B to £5.5B between fiscal 2016 and 2025. EPS increased at about the same rate, going from £0.12 in 2016 to £0.32 in 2025. And that even included a weak year; earnings were £0.37 per share in 2024.

We’ll also note that despite the growth, shares outstanding almost didn’t budge at all. They only increased from 1B to 1.005B in the last decade, a bump of less than 0.1% annually.

Despite this long-term record of success, B&M shares have struggled lately. Shares are down nearly 50% in the last year, 45% in the last five years, and 22% in the last decade. So, what gives?

The first issue has been recent results. Same-store sales were negative in fiscal 2025 (which ended March 31st), and Heron sales were especially weak. B&M UK same-store sales were down 3.1%, while Heron saw total sales decreasing by 0.6% — and that despite opening new stores. The bright spot was France, but even it was down significantly compared to the year before.

It hasn’t just been bad results that have weighed on the stock. The company originally came into fiscal 2025 with high expectations. Guidance was cut and then cut again as actual results disappointed. It was so bad that the CEO abruptly resigned in April, with the official press release saying Alex Russo “retired” with zero notice.

Finally, folks aren’t particularly bullish on the UK consumer. Although there aren’t many items in B&M or Heron stores that come from the U.S., investors are still worried about tariffs. They’re also worried about the UK economy, although the FTSE 100 (that’s Britain’s benchmark stock market index) has recently hit all-time highs.

The opportunity

This is the part of the newsletter where I focus on why you should buy shares now. We’re essentially trying to establish whether shares are a good deal today.

I won’t bury the lede here. I think B&M shares are a great value today. 

After yet another lackluster profit report — sales were up 4.4% in Q1, with B&M same-store sales up just 1.3% — shares once again had a sharp one-day drop. The price is down to the £2.35 range, which is actually a 10-year low.

I like buying stocks when they’re cheap, and B&M checks off that box.

Valuation wise the stock is also quite cheap. Earnings have taken a bit of a hit in the last couple of years, but not nearly as much as the share price. The stock trades at under 8x forward earnings, which is the cheapest valuation since the IPO.

The stock is also trading at a multi-year low pretty much no matter what other valuation metric you look at.

Expectations are incredibly low right now. Sure, numbers have been disappointing, but the company is still growing the top line. Last year was such a disaster that the stock has fallen almost 50%, yet profits only fell from £0.37 to £0.34 per share. Analysts expect another haircut this year, but let’s not get too excited here. Profits are expected to fall to £0.33 per share.

This is still a comfortably profitable company that doesn’t really have huge problems to fix. I believe the share price meltdown had more to do with expectations being too high than actual results being that bad.

Dividends and buybacks

As mentioned, B&M hasn’t been a serial share issuer. It has largely paid for growth with internal cash flow, and it keeps capex expenses reasonable by renting its locations.

The company may start to repurchase shares, however. It is currently in the redomiciling process as it looks to change its official jurisdiction from the UK to Jersey. This will simplify administrative processes and give the company more flexibility to repurchase shares.

Let’s focus on dividends next. Despite growing significantly, B&M is still paying a generous dividend. It’s also been topping up that dividend with an annual special dividend.

The annual dividend has increased from £0.05 to £0.15 per share in the last decade. It reached a temporary high of £0.17 in 2021 before falling back to the current level of £0.15. Based on the current payout, B&M yields a generous 6.4%.

European dividends are a little different than in North America. They look at profitability first, and will then determine the dividend from that. So you’re more likely to see dividend cuts from European companies when business is temporarily rough.

However, B&M has paid extremely generous special dividends annually since 2020, including:

• 2020: £0.15

• 2021: £0.45

• 2022: £0.25

• 2023: £0.20

• 2024: £0.20

• 2025: £0.15

• Total: £1.30

You’ve gotten more than half of today’s share price back in special dividends alone since March, 2020. Combine that with the regular dividend, and investors have gotten back £2.17 per share in dividends since 2020. That’s only marginally higher than the share price today. 

The dividend is variable, but the yield including the special dividends is very generous. The company could easily pay out £0.25 to £0.30 per share in total dividends in 2026, which would put us in the 10-12% dividend yield range.

How Canadians can buy this one

The vast majority of Canadian Dividend Investing’s readers are Canadian, and most of them use a brokerage offered by one of Canada’s five largest banks.

These brokerages typically don’t offer access to the UK market, but there is a solution for Canadian investors. They can buy shares on the U.S. OTC (over the counter) market.

Here’s where it gets a little bit tricky. There are two B&M share issues on the OTC market. One trades under the ticker BMRRY and the other trades under BMRPF.

Fortunately the OTC website can help us out here. One BMRRY share represents four common shares. As I type this the stock trades for US$12.28 each, and the math checks out when you work backwards.

BMRPF is even simpler. Each BMRPF share represents one B&M share.

One important thing to consider before buying is liquidity. According to Yahoo! Finance, average volume on BMRPF is just under 59,000 shares per day. That works out to about US$200,000 in trading volume in a given day, which isn’t much.

BMRRY, meanwhile, has slightly less gross volume, only trading a hair over 48,000 shares on an average day. But because the price is higher, more dollars are being traded. It works out to about US$600,000 in average daily volume.

No matter which one you buy, make sure you use limit orders rather than market orders.

A couple more quick notes. First, the CRA doesn’t allow most OTC stocks to be held in registered accounts. So you’ll have to buy this one outside of your RRSP or TFSA.

And second, you won’t be able to buy this one with Wealthsimple. I checked, it’s not on the available list of eligible OTC stocks.

The bottom line

B&M is one of those stories where the underlying business has only stumbled slightly, yet the stock is much lower.

Shares are 51% lower in the last 52 weeks, yet profits only fell from £0.37 to £0.34. Revenues were 1.6% higher, too.

Yes, there are problems. Management totally blew guidance. They whacked the CEO, and investors don’t seem thrilled with the new guy. Heron looks to be particularly weak. And investors aren’t very confident in the UK consumer, and they’re especially bearish on the lower end of the market — which happen to be B&M’s core customer.

But this is a company that has done a wonderful job growing the business over the long-term. It still has loads of expansion potential too, telling investors last year that it sees potential for 1,200 B&M stores in the UK alone. It has barely scratched the surface in France, too.

Plus, dollar stores are good businesses — no matter what side of the Atlantic you’re on. B&M offers a 42.9% return on equity and 16.9% return on invested capital. And that’s using results that were far short of expectations.

I believe this is a situation where investors are too short-term focused. B&M could easily recover, and when it does the stock could trade for 15-20x earnings again. That would give us 100%+ upside, plus the generous dividend.

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