When a company has increased its dividend payment every year for 26 consecutive years, you know it’s doing something right. Atco (TSX:ACO.X) belongs to a select club of Canadian stocks that have paid out rising dividends for over a quarter of a century.
A diversified global player with a primary focus on energy infrastructure through Canadian Utilities, Atco also has holdings in housing, transportation and logistics, and commercial real estate.
The numbers play
The company declared its third-quarter results for 2019, and the numbers were lower than the same period in 2018. Atco’s consolidated revenues in the September quarter came in at $1.097 billion compared to $1.111 billion for 2018. Adjusted earnings in the third quarter of 2019 were $74 million compared to $87 million in the third quarter of 2018.
Lower third-quarter earnings recorded in Canadian Utilities and ATCO Investments were partially offset by higher earnings in Structures & Logistics and Neltume Ports. The adjusted earnings do not include a gain of $73 million from the sale of Canadian Utilities’s 2,100-MW Canadian fossil fuel-based electricity generation portfolio.
Higher third-quarter 2019 earnings in Structures & Logistics and Neltume Ports were more than offset by lower earnings in Canadian Utilities. ATCO’s corporate and other recorded $12 million in lower third-quarter 2019 earnings mainly due to lower income from ATCO Investments, as ATCO Investments completed two commercial real estate transactions in the third quarter of 2018.
Atco has declared a fourth-quarter dividend of $0.4048 per share, or $1.62 per share (on an annual basis), which adds up to a strong dividend yield of 3.25%.
Future growth
When you are thinking of investing into a stock for long term, you want to make sure that the company has a vision for the future. Atco is full of potential. In Canada, manufacturing and site construction work for Atco’s LNG project is on schedule.
In the United States, Atco completed a $7 million contract to supply modular products for a Marriott hotel situated near San Francisco, California, in the third quarter. The second $7 million contract to supply modular products for a Marriott hotel in Oakland, California, is expected to be completed in early 2020.
Manufacturing commenced on a 400-room, two-story accommodation village in Karratha, Western Australia. The total contract value is $22 million with the final handover expected in April 2020. Atco’s modular structures team also completed the final handover of a 600-person camp in Western Australia this quarter. The total contract value is $27 million with ongoing rental earnings from the initial date of occupation in August of 2019 through to early 2021.
Neltume Ports also contributed $2 million and higher earnings in the third quarter and was awarded a 25-year copper concentrate loading contract at one of its Chilean ports. The contract extends the concession agreement at the port for another 15 years to 2041.
When you add up all these factors, it’s no wonder that Dominion Bond Rating Service affirmed their A range corporate credit rating and stable outlook for Atco and Canadian Utilities. And S&P Global Ratings affirmed their A- credit rating and stable outlook for Atco companies as well. All of them helped Atco stock hit their 52-week high of $50.48 on November 6. The stock is currently trading at $49.56.
