Is Enercare Inc. a Buy at Today’s Levels?

Why Enercare Inc. (TSX:ECI) is an interesting company to consider as a long-term investment.

The Motley Fool

Many of the world’s most iconic investors have made fortunes investing in what many market participants would agree are “boring” business. In that regard, Enercare Inc. (TSX:ECI) fits the mould as a boring, yet profitable business to consider.

This Canadian provider of services relating to sub-metering, water heaters, furnaces, and air conditioning systems has experienced a nice boost of late. Increased consumer spending across the company’s operating segments, helped along by tailwinds stemming from the most recent Trump Rally and improved sentiment in the North American housing sector, is leading to increased spending on important, yet cyclical purchases.

The cyclical nature of Enercare’s business model is certainly something to take into consideration; looking at Enercare’s stock chart over the past 10 years, one will notice that during the most recent housing-driven recession, the company’s shares lost approximately 80% of their value. That said, shares have since returned to pre-recession levels, making this a great company to play industry-wide cyclical trends.

Perhaps the cyclical nature of the company’s business model has inspired management to look at ways of weathering such a storm in the future; one indication that this may be the case is reflected in increased capital spending in recent years which has aligned with increased net operating cash flow. As Enercare’s operations have become more profitable, management has been reinvesting these earnings back into the business, substantially increasing the book value of the company’s asset base, which was previously declining.

Subsequent free cash flow generation in recent years has become muted by the increased capital expenditure outlays each year; however, I view this spending largely as a defensive move in the sense that the company is reinvesting in itself, indicating that it expects to be more profitable in the future. In the case of a sustained market correction, similar to the one experienced 10 years ago, capital-expenditure spending is one thing that can easily be cut back on, increasing cash flow temporarily as the company weathers the storm.

For a long-term investor considering a buy-and-hold strategy for at least a decade, one of the most interesting aspects of Enercare shares is the corresponding dividend yield — a yield which currently sits around 4.7%, although it has declined recently due to capital appreciation in the underlying shares. Management has remained committed to raising its dividend distributions annually, increasing the dividend each year for the past eight years (following the recession), and is likely to continue to do so moving forward, barring a significant negative macroeconomic event.

Stay Foolish, my friends.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chris MacDonald has no position in any stocks mentioned.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »