The Motley Fool

2 Beaten-Up Dividend-Growth Stocks With Strong Upside

SNC-Lavalin Group Inc. (TSX:SNC) and Stantec Inc. (TSX:STN)(NYSE:STN) shares are trading near their 52-week lows, having declined 12.5% and 10.2%, respectively, year to date. The companies are in the construction and engineering industry, which has underperformed the market in the period.

Which of the beaten-down stocks is a better investment today? Let’s first take a look at their businesses, profitability, and dividend history.

SNC-Lavalin Group

Since SNC-Lavalin was founded in 1911, it has become one of the leading engineering and construction companies in the world with offices in more than 50 countries.

It serves four key industries and generated 2016 revenue as follows: oil and gas (44% of revenue), infrastructure (29%), power (18%), and mining and metallurgy (9%).

From 2011 to 2016, SNC-Lavalin grew its revenue at a compound annual growth rate (CAGR) of 3.3%, but its earnings per share (EPS) declined nearly 32% in those five years.

In the same period, its operating margins were between 2% and 8.9%. Comparatively, its operating margin in the last 12 months was near the midpoint at 5.2%.

Despite bumpy revenues and earnings, SNC-Lavalin has been shareholder friendly by raising its dividend per share (DPS) for 16 consecutive years. Its 10-year dividend-growth rate (DGR) of 14% is impressive.

However, the company’s dividend growth has slowed down considerably in the last five years. Since 2012, it has increased its DPS by only 4-5% per year.


Stantec has a focus in North America and is the third-largest construction and engineering firm there. That said, it also has some global operations. It is the 11th-largest globally and aims to be in the top 10.

From 2011 to 2016, Stantec increased its revenue at a CAGR of 20.6% and its EPS increased about eight-fold in those five years. In the same period, its operating margins were between 3.7% and 9.3%. Its operating margin in the last 12 months was near the low end at 4.9%.

Stantec has raised its DPS for five consecutive years. Its five-year DGR was 10.7%. Comparatively, its quarterly DPS is 11.1% higher than it was a year ago.

Which is a better buy?

Although Stantec’s earnings seem to have launched into the stratosphere since 2011, it’s not fair to say it is a better company than SNC-Lavalin. If we look at the period from 2013 to 2016, the companies would have switched places — SNC-Lavalin’s earnings growth greatly outperformed Stantec’s.

All that can be said is that their earnings and revenues are bumpy. That said, analysts clearly favour one over the other.

Eleven analysts at Reuters give SNC-Lavalin a 12-month mean price target of $65.30, which implies potential upside of 29% from about $50.60 per share; that’s on top of the 2.1% yield it offers.

For Stantec, 10 Reuters analysts give it a 12-month mean price target of $37, which implies potential upside of 21% from about $30.50 per share; that’s on top of the 1.6% yield it offers.

In summary, the construction and engineering industry isn’t where one would look for yield. However, SNC-Lavalin seems to have more growth than Stantec in the near term, and it offers a roughly 30% higher yield.

The 10 Best Stocks to Buy This Month

Renowned Canadian investor Iain Butler just named 10 stocks for Canadians to buy TODAY. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you. Because Motley Fool Canada is offering a full 65% off the list price of their top stock-picking service, plus a complete membership fee back guarantee on what you pay for the service. Simply click here to discover how you can take advantage of this.

Click Here to Learn More Today!

Fool contributor Kay Ng has no position in any stocks mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.