Carrefour's Latin American Gambit: Dividend Growth Fuels Buy Rating

Carrefour, the French retail giant, is staking its future on the high-growth markets of Latin America, where its 2024 performance in Brazil and Argentina has positioned it as a regional leader. With a sharp focus on ROI expansion, accretive acquisitions, and disciplined capital allocation, the company is delivering on its Carrefour 2026 strategic plan. This analysis explores how Carrefour's Latin American operations—bolstered by full ownership of its Brazilian subsidiary—are driving shareholder returns while navigating macroeconomic headwinds.

The Brazil Acquisition: A Catalyst for ROI Growth

The $1.2 billion acquisition of Grupo BIG (formerly Walmart Brazil) in 2022 has been transformative. In 2024, Brazil's Recurring Operating Income (ROI) rose 23.4% in local currency, reaching €764 million. This reflects synergies from integrating 387 stores into Carrefour's Atacadão cash-and-carry format, which now dominates Brazil's wholesale sector. The move solidified Carrefour's leadership, with Brazil contributing €879 million to Latin America's total ROI—a 26% increase excluding currency effects.

Argentina, despite hyperinflation, delivered a 176% surge in like-for-like sales and a record ROI of €115 million in 2024. Together, these markets underpin Carrefour's global ROI growth of 2.6%, even as European operations faced headwinds.

Dividend Sustainability: Strong Cash Flows Offset Rising Debt

Carrefour's dividend policy has been a cornerstone of its shareholder value proposition. In 2024, the company raised its ordinary dividend by 6% to €0.92 per share, while also distributing a special dividend of €0.23 per share, totaling €1.15 per share. This reflects its €1.46 billion net free cash flow—a robust figure that supports both dividends and deleveraging.

However, net financial debt rose to €3.78 billion in 2024, largely due to acquisitions like Cora and Match in France. The company has mitigated this through sustainability-linked bonds and refinancing, maintaining an investment-grade BBB rating. While debt levels are elevated, the strong cash flows from Latin America and cost-saving initiatives (€1.2 billion targeted for 2025) suggest a manageable path to deleverage.

The dividend payout ratio (dividends/earnings) reached 160% in 2024 due to the special dividend, but this is a one-time event. Excluding it, the payout remains within a sustainable 32-35% range, leaving room for future increases.

ESG Progress: A Strategic Differentiator

Carrefour's ESG initiatives are not just compliance checkboxes but growth enablers. In Brazil, it aims to hire 10,000 people from welfare programs by 2025, with 1,143 hired by 2024—a 10% milestone toward its goal. Sustainability-linked revenue from certified products hit R$897 million in 2024, advancing toward its R$1.4 billion 2026 target.

Environmental targets, such as a 35% emissions reduction (vs. a 50% 2030 goal), align with investor demand for climate resilience. These efforts have earned Carrefour Grade A ratings from MSCI and the Carbon Disclosure Project, enhancing its access to green financing.

2026 Targets: Scaling for Sustained Growth

Carrefour's 2026 plan hinges on three pillars:
1. Private Label Expansion: Targeting 40% of food sales via brands like Carrefour Marca Propia, which boost margins.
2. E-commerce Dominance: Doubling online GMV to €10 billion by 2026, leveraging Brazil's 40% e-commerce growth in 2023.
3. Operational Efficiency: A €4 billion cost-savings target by 2026, with €1.06 billion achieved in 2023 alone.

These initiatives are expected to drive low-double-digit ROI growth in Latin America, reinforcing cash flows and dividend capacity.

Risks and Considerations

• Currency Volatility: Brazil's real and Argentina's peso remain unstable, though hedging strategies and local currency debt issuance mitigate risks.
• European Competitiveness: Weakness in Poland (-3% LFL sales in 2024) could divert resources from Latin America's growth.
• Debt Management: Rising interest rates may increase refinancing costs, though Carrefour's BBB rating provides flexibility.

Investment Thesis: Buy with a 12-18 Month Horizon

Carrefour's Latin America operations are the engine of its turnaround. The Brazil acquisition is accretive, with ROI growth outpacing debt costs. Meanwhile, the special dividend in 2024 signals management's confidence in cash flow resilience, and the 5.24% forward yield offers compelling income potential.

Recommendation: Buy Carrefour with a 12-18 month horizon. Key catalysts include:
- 2026 ESG milestones, enhancing investor appeal.
- Brazil's market share gains, supporting ROI stability.
- Debt reduction through cost savings and asset sales (e.g., real estate).

Price Target: €15.50 (based on 15x 2026E EPS).

Conclusion

Carrefour's pivot to Latin America is paying off. By consolidating Brazil's retail crown and leveraging Argentina's resilience, it has built a high-margin, cash-generative business. While debt remains a watchlist item, the dividend's sustainability and ESG progress position Carrefour as a compelling play on emerging markets. For income-focused investors, this is a buy with upside potential.

Disclosure: This analysis is for informational purposes only and not financial advice.