Metro Inc.: Stock & Dividend Analysis

Canada is a country that seems to be dominated by oligopolies.

Our six largest banks collectively control about 90% of the country’s banking assets. The four largest telecoms own a similar share of their market. There are only two railroads, each with large coast-to-coast networks that enable both to transport goods to every major city.

There’s more. The oil sands are dominated by four players — which in turn gives them the lion’s share of energy production in Canada. There are nine companies that own oil refineries in Canada, but only five — Imperial Oil, Suncor, Shell, Valero, and Irving — account for more than 80% of the market. Two airlines dominate the skies, three life insurers have a stranglehold on the market, and even something as mundane as pork processing is controlled by two players (Canada Packers and Olymel).

How much you might tolerate this situation will largely come down to your perspective. Consumers hate these oligopolies. They say it leads to higher prices, crummier service, and are ultimately one of the reasons why the country is failing. Just look at whatever piece of data best backs their conclusion.

Investors have the exact opposite perspective. We view oligopolies as an ideal setup. They have captive customers without any real alternative, who are forced to pay higher prices, and each player should get their share of the profits. It’s a terrific situation for investors, which for the most part has translated into higher returns.

(It’s also the inspiration for the piece of advice I give non-investors when they complain about the cost of things. “If a company is ripping you off that badly, I bet it’s a good investment.” Very few act, but that’s okay. It usually shuts them up — which is the real goal.)

Today we’re going to talk about one of these oligopolies, the one that arguably pisses off consumers the most. If you believe the most vocal of complainers, Canada’s three largest grocers are solely responsible for inflating the price of groceries in this country, right at the time when most consumers are feeling especially pinched.

Let’s take a look at one member of this exclusive club, Metro (TSX:MRU), and see if the stock is an opportunity based on that logic.

Metro is Canada’s third-largest grocery chain, trailing Loblaw Companies (TSX:L) and Empire Company (TSX:EMP.A). Unlike its two larger competitors — who operate from coast-to-coast, Metro is only located in Ontario, Quebec, and a tiny bit into the Maritimes.

It has more than 1,000 supermarkets, which operate under the Metro, Metro Plus, Super C, and Food Basics banners. It acquired Quebec pharmacy chain Jean Coutu in 2018, and has grown it to a network of 635 stores. And it supplies products to the more than 300 independent Marche AMI stores in Quebec. The various parts of the company generated more than $22B in top-line sales in fiscal 2025.

Here’s a glance at the various banners. It’s from the 2025 annual report, so there are slight discrepancies with store numbers.

Metro got its start as a buying association. A small group of independent stores realized they could get better prices from suppliers if they pooled their buying power. The company grew, and began acquiring stores in the buying group. It made further acquisitions over the years, including:

Loeb and A&P gave Metro exposure outside of Quebec for the first time.

These days, Metro is a strong player in both of Canada’s most populous provinces. It has a combination of different banners catering to the conventional, discount, and even specialty grocery crowd. It has roughly a 25% market share in its home province, and has built the Ontario business to a market share of about 20%.

Metro is unique among its peers for not having a presence out west. Locations go only as far west as Thunder Bay. The company was heavily rumoured to be interested in Safeway when its U.S. parent put the chain up for sale in 2013. Safeway was a Western Canadian chain, which would’ve given Metro a true coast-to-coast presence. But it doesn’t look like Metro even put in a bid. Sobeys ended up with the prize, and parent company Empire saw its shares suffer for years as promised synergies didn’t materialize.

That deal doesn’t look so bad in 2026, but the market hated it for a solid five years after it was announced. In hindsight that was the time to buy — my buddy Jim the plumber was — but alas, I did not.

There were a number of reasons floated why Metro didn’t even try for Safeway. One was Sobeys paid so much that it scared off any competing bids. Another was it would be too complicated to have a coast-to-coast logistics network. I think the first one is the most likely explanation, but I’ll offer an alternative one.

In 2005, when Metro acquired A&P, it beat Sobeys in a bidding war. Sobeys bid $1.5B in cash, but Metro came through with a $1.7B offer consisting of $1.2B of cash and $500M in stock. The $500M worth of stock was the kicker; A&P’s controlling family — the Haub family, through the Tengelmann Group — wanted stock to maintain an investment in the Canadian grocery market. This way it got the best of both worlds — $1.2B to pay off debt, and a passive investment.

My view is Metro remembered the A&P deal and wanted to avoid a bidding war with the Sobey family at all costs.

Things changed quickly, and A&P pivoted to acquiring Pathmark Stores in 2007, trying to achieve more scale. It didn’t work, and the chain was bankrupt by 2010. It entered bankruptcy for a second time in 2015, and stores were sold off piecemeal to about a dozen different competitors.

These days Metro is chugging along pretty nicely, although it has dealt with a few issues recently. Second quarter sales were up by 4.1%, led by pharmacy sales which increased by 5.1%. Food sales lagged a bit, but were still 1.8% higher on a same-store basis. Adjusted earnings were up 4.4% to $236.5M, with per share results even better. They were $1.11 per share, an increase of 8.8%. Metro has been a consistent share repurchaser over the years, and it returned $222.5M to shareholders in the quarter. Through two quarters of fiscal 2026 the company repurchased 2.9M shares for approximately $280M.

Long-term results are also quite good. Metro has consistently grown both its sales and its bottom line over the last decade.

Analysts expect revenue growth of about 3-5% per year over the next few years, with the bottom line expanding in the 7-9% range on a per share basis. I think these numbers are pretty reasonable. Metro should benefit from more Canadians choosing to live in the country’s two largest metros (pun totally intended). It’s the kind of slow and steady business we love so much around here.

So why have shares performed so poorly since the latter part of 2025? The stock is down 14%. Without the recent rally the stock was down closer to 20%.

One issue has been general weakness in consumer stocks. It’s mostly U.S. consumer stocks that are getting hit the hardest, but Canadian grocers are also feeling the pain. Both Loblaw and Empire shares are down from their 52-week highs, although both rallied smartly on Friday as investors looked for safe havens amid the worst tech sell-off in a year.

Metro has had a few operational issues, too. In the latter part of calendar 2025 it told investors that a mechanical issue impacted its frozen warehouse in Toronto. The problem turned out to be more complicated than first thought, and operations took two months to resume. They’re now back to normal.

Another issue has been labour relations. 550 employees from the Laval produce warehouse are on strike. The dispute has been going on since March 30th, and there are reports that it has led to product shortages in Quebec. The Quebec labour ministry got involved, and the company was accused of hiring scab labour to fill the gaps.

Remember, this isn’t the first Metro strike. Some 3,700 Ontario store employees went on strike in 2023. The dispute lasted for about a month, with 27 stores feeling the impact.

Metro has already told investors to expect some short-term weakness from the Laval strike.

I view this strike as nothing more than a distraction that won’t matter five years from now, but I’m finding that fewer and fewer investors are willing to think that far out these days. This is an opportunity for the long-term dividend investor.

Y’all should know by now that I don’t spend a lot of time tying myself into logic knots trying to justify an opportunity. I want a straightforward thesis that doesn’t require too much brain power.

The thesis with Metro is as follows:

Shares are $92 each as I write this. That puts us at about 17x forward earnings, which is about an average valuation over the last decade. If shares fall to the low-$80 range, that puts us at right around 15x forward earnings. That would be the lowest valuation since 2018, and a decent discount to the average.

(When Metro first came back to my watchlist it was at $87 and falling, so I thought the low $80s might be achievable. It’s less achievable if the stock is rising, for obvious reasons)

Metro is more fairly valued if we look at the dividend yield. The current yield is 1.8%, which is close to a five-year high. The stock flirted with a 2% yield back in 2024 as shares were depressed, and then fell back into the 1.5% range.

In short, from a valuation perspective, I’d say Metro is probably a smidge undervalued, but not excessively so. I’d be much more excited about adding in the low-$80 range.

Metro has quietly amassed one of the best share buyback records on the TSX. With the exception of the 2018-19 period — when it issued shares to help pay for the Jean Coutu acquisition — shares outstanding have steadily declined.

Shares went from 255M in 2019 to 219M at the end of fiscal 2025. There are approximately 210M shares outstanding today.

Metro has put up one of the best dividend growth records on the entire TSX, but the company isn’t great at communicating that. It doesn’t even have a long-term history of dividend payments on its website.

Here’s what we do know:

The ten-year record — which I can pull off TIKR — is impressive at least.

I know Metro’s yield looks low, but when you combine it with the share repurchases, the shareholder yield is in the 4% range. That’s surprisingly decent.

Dividend safety: High
Dividend growth potential: 10%

Let’s quickly go over what I like about Metro, and then what I don’t like. On the positive side, we have:

And on the negative side, I’ll mention:

I’ve always had a soft spot for Metro. My view is it might be Canada’s best managed grocery chain. Loblaw gets all the attention, but Metro has quietly held its own in the most competitive markets in the country. All while going up against strong domestic competition — along with the Walmarts and Costcos of the world. That is no small feat.

I last bought this one in 2023 as shares fell from a high of almost $80 to the $66 range. We’re in a similar drawdown today, although that was interrupted by an exceptionally strong day Friday. I paid around 15x earnings.

I’d love to do that again, so I’ll patiently wait and hope the stock falls to that level. My view is you get excess returns by having that discipline. If it doesn’t get there? Shrug. There are plenty of other stocks out there.