Buy Canadian Index: Dollarama Ticks All the Boxes

By Will Ashworth

As part of my ongoing series of articles identifying stocks for InvestorThread’s Buy Canadian Index, today’s piece looks at Dollarama (DOL), Canada’s dominant discount retail chain, with 1,601 stores in all 10 provinces and two of Canada’s three territories. 

It is the undisputed champion of $5 or less retail. 

While it continues to grow the brand domestically, it is ramping up the growth of Dollarcity, the dollar-store chain it controls — it upped its equity stake to 60.1% in June 2024, with an option to add 9.89% in the future — which operates 588 stores in five Latin American countries: Colombia, El Salvador, Guatemala, Peru, and Mexico. By 2031, it hopes to have 1,050 stores open in the region, with 2,200 in Canada. 

The Rossy family and the entire management team have done an excellent job growing its business at a time when its U.S. peers aren’t doing nearly as well. Over the past year, Dollarama’s stock has gained almost 47%, 204% better than Dollar Tree (DLTR) and Dollar General (DG). Over the past five years, it’s even more dominant.

My last selection was Restaurant Brands International (QSR). It failed miserably under the “Buy Canadian” microscope. I suspect that Dollarama will do much better. 

What does it take to get on this list: There are four criteria for evaluating Buy Canadian Index candidates. A company must get at least 28 out of 40 points to qualify. 

 Is it listed on the TSX or TSX Venture?

How much revenue is from Canada?

What percentage of its stock is held by Canadians? and 

What percentage of its employees are located in Canada?

Dollarama TSX-Only Since 2009

The Rossy family history dates back to 1910 when Salim Rossy opened the first of several S.Rossy stores in Montreal. 

The first Dollarama opened in April 1992, when Larry Rossy converted one of the family’s stores into a discount store selling $1 or less items. It’s since increased the maximum to $5, but it remains the place for Canadians to find value for everyday items. 

Larry took Dollarama public in October 2009 after partnering with private equity firm Bain Capital over the preceding five years to accelerate its growth. Dollarama raised $300 million in its IPO, selling 17.1 million shares at $17.50 each. The company used the proceeds to repay some of its debt. 

If you bought 100 shares of DOL stock in the IPO, you would have 600 shares today due to stock splits in 2014 and 2018, worth $89,214, a 50x return on your original $1,750 investment.

Not too shabby. Larry’s son, Neil, now runs Dollarama, and he’s doing a fine job.

10 points - A stock is listed only on a Canadian stock exchange.

6 points - A stock is dual-listed on a Canadian and foreign exchange. 

3 points - A stock is only listed on a stock exchange outside Canada.

On this metric, Dollarama gets 10 out of 10 points. 

How Much Money Does Dollarama Generate in Canada  

As of Dec. 31, 2023, Dollarcity’s annual revenue was $1.38 billion. Dollarama’s domestic revenue in 2023 was $5.87 billion. The company’s Canadian revenues accounted for 81% of its $7.25 billion overall. 

However, at the end of 2023, it used the equity method to account for its 50.1% interest in Dollarcity. That would reduce Dollarcity’s revenue contribution to $691 million in 2023, or just 11% of revenue. 

As Dollarcity grows, Dollarama’s Canadian revenue, as a percentage overall, will fall, reducing its Canadianess. 

10 points - A stock generates 75% of its revenue in Canada. 

6 points - A stock generates 50.1% to 74.9% of its revenue in Canada.

3 points - A stock generates 50.0% or less of its revenue in Canada. 

On this criterion, Dollarama gets 10 out of 10 points. 

How Canadian is Dollarama’s Ownership 

Immediately following Dollarama public listing in 2009, Larry Rossy held 12.2% of the company’s stock. However, its private equity partner, Bain Capital, had 60.9%, making the dollar store chain American-controlled. 

Today, Larry & Neil, according to S&P Capital IQ, owns approximately 1.09%, with other insiders an additional 0.37%. Institutions own 44.90% of Dollarama, and public investors own 53.64%.

Although the company doesn’t break out the ownership by country, there are a few things to consider. 

First, because Dollarama doesn’t have a primary listing on a U.S. stock exchange, the stock trades over-the-counter in the U.S. Its average daily volume over the past three months is 700,000 on the TSX and just 80,000 U.S. over-the-counter. Therefore, except for the largest retail investors who trade on the TSX, the ownership of the 148.68 million shares held by the public likely leans heavily toward Canadians. 

Let’s estimate 75% of this number. That’s 111.51 million or 40.2% of the 277.17 million outstanding. Add in the company insiders, and that gets us to 41.66%. 

Second, the largest institutional investor is Caisse de dépôt et placement du Québec, the investment manager for the Quebec government’s pension fund. It owns 4.76% of Dollarama, bringing the Canadian ownership to at least 46.42%. Of the other 40.1% held by institutions, let’s assume 30% are Canadian firms acting on behalf of Canadian pensions, etc. That adds 12% Canadian ownership.

This brings the estimated Canadian ownership to 52.1%.

10 points - Canadian investors hold 75% of its shares or more.  

6 points - Canadian investors hold 50.1% to 74.9% of its shares.

3 points - Canadian investors hold 50.0% or less of its shares.

On this criterion, Dollarama gets 6 out of 10 points. 

How Many of Dollarama’s Employees Are Located in Canada?

According to the company’s 2024 annual information form, it had 27,385 store employees as of Jan. 28, 2024, with 35% full-time and 65% part-time. On top of that, 675 were employed in the corporate office or the field, along with over 290 at its warehouse and distribution centres. 

In total, it had 28,350 employees in Canada. Dollarcity had 6,890 employees, for a worldwide total of 35,240. That’s 80.4% of its employees working in Canada.   

10 points - 75% of its employees are based in Canada. 

6 points - 50.1% to 74.9% of its employees are based in Canada. 

3 points - Less than 50.0% of its employees are based in Canada. 

On this criterion, Dollarama gets 10 out of 10 points. 

 Is Dollarama Eligible for the Buy Canadian Index? 

With 36 out of 40 points, it meets the 28-point minimum to qualify, and then some. 

Disclaimer: The author did not hold a position in any of the securities mentioned above. The information provided in this article is for educational and informational purposes only and should not be construed as investment advice. Always conduct your own research or consult with a licensed financial professional before making any investment decisions. Past performance is not indicative of future results.

Will Ashworth is currently ranked 145 out of 30,890 financial bloggers analyzed by TipRanks, with a 16% return on his buy and sell ratings. He is one of the founding contributors to this newsletter.

Will has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.