A TSX Dividend Stock Down 42% That’s Worth Buying Before it Rebounds

Pet Valu Holdings (TSX:PET) is down roughly 42% from its all-time high. However, for those willing to look past a tough macro backdrop, this battered TSX dividend stock looks like a genuine buying opportunity right now.

Canada’s leading pet specialty retailer is wrestling with the same headwinds weighing on Canadian consumer spending broadly. The business is growing, profitable, and returning serious cash to shareholders.

Valued at a market cap of $1.55 billion, Pet Valu offers you a dividend yield of 2.3% in March 2026.

Is the TSX dividend stock a good buy?

Pet Valu operates or franchises 863 stores from coast to coast. That’s nearly four times as many locations as its nearest pet specialty competitor. The company sells pet food, treats, accessories, and services like dog washes under both national brands and its own proprietary labels.

Those proprietary brands are a key part of the investment story. They now account for roughly 25% of total sales and carry an average margin advantage of about 1,200 basis points over national-brand alternatives.

Simply put, Pet Valu’s own-brand products cost less for customers and generate more profit for the company. Unit penetration increased by about 200 basis points in 2025, with further growth planned for 2026.

Pet Valu’s supply chain transformation is another tailwind. The small-cap retailer has increased throughput by more than 60% per labour hour compared to its pre-transformation baseline. That kind of efficiency gain flows directly to the bottom line.

For full-year 2025, Pet Valu grew revenue more than 5% on a comparable 52-week basis and maintained adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margins of 22%.

The fourth quarter was admittedly softer than expected:

• Same-store sales rose just 0.3%, dragged down by more cautious consumer spending and elevated promotional activity from competitors.
• But units per transaction hit a multi-year high, a sign that customers who did show up were buying more.
• Loyalty program penetration reached an all-time high of 88%.

For 2026, management is guiding for revenue growth of 2-4%, flat-to-slight EBITDA margin expansion, and mid- to high-single-digit adjusted earnings-per-share (EPS) growth.

The EPS improvement will be driven by leverage from completed supply chain investments, which no longer carry the heavy fixed-cost drag they did over the past four years.

A focus on dividend expansion

In a market full of dividend stocks treading water, Pet Valu raised its quarterly dividend by 8% to $0.13 per share. That marks five consecutive years of dividend growth.

Analysts tracking the Canadian dividend stock forecast free cash flow (FCF) to expand to $197 million by 2030. A widening FCF base should translate into consistent dividend hikes in the near term.

If PET stock is priced at 15 times forward FCF, it could surge over 90% within the next four years. If we account for dividend reinvestments, cumulative returns should exceed 100%.

In 2025, the company returned a record $121 million to shareholders through dividends and buybacks, nearly double what it returned in 2024. Management has already restarted buybacks under its renewed normal course issuer bid and plans to continue through 2026.

Net capital expenditure guidance for 2026 is just $20 million, down sharply from the elevated levels of recent years. That means more FCF is available for shareholder returns.

With an annual dividend expense of less than $40 million, the payout is well-covered.

The Foolish takeaway

Pet Valu is a well-managed, cash-generative business in a resilient category. Canadians don’t stop feeding their pets during a slowdown. The near-term environment is tough, but the structural advantages: store count, supply chain efficiency, proprietary brand margins, and deep customer loyalty remain intact.

With the stock still well off its highs, an 8% dividend raise on the table, and FCF growth expected to accelerate in 2026, this looks like the kind of setup that rewards patient investors. The rebound may not happen overnight, but the foundation is clearly being built.

The post A TSX Dividend Stock Down 42% That’s Worth Buying Before it Rebounds appeared first on The Motley Fool Canada.

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Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Pet Valu. The Motley Fool has a disclosure policy.