Double Your Money With This Small-Cap Stock

Tidewater Midstream & Infrastructure (TSX:TWM) stock is trending higher after earnings.

| More on:
Growing plant shoots on coins

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Small-cap companies have a lack of following and coverage. And that’s why value can be more easily found in small caps than in mid- or large-cap companies.

Tidewater Midstream & Infrastructure (TSX:TWM) is a small-cap company that may be a stranger to many. No doubt, the company’s market cap of roughly $360 million scares many investors away.

Tidewater has been expanding its value chain as a needed energy infrastructure company with the majority of its assets in Alberta. At the start of this month, it finished acquiring the Prince George light oil refinery, including light oil feedstock, line fill, and refined product in storage, from Husky Energy for $277 million. The news — arguably unfairly — dragged the small-cap stock 13% lower to $1 per share at the time.

Tidewater generates stable cash flows, maintains a low payout ratio, and has an eye on its debt levels to keep its dividend safe.

As of writing, Tidewater just reported its third-quarter results, leading to the stock trading about 5% higher. The small-cap stock is coming off from a very low valuation (and remains a tremendously cheap stock). So, there’s massive upside potential.

Group of industrial workers in a refinery - oil processing equipment and machinery

Recent results

For Q3, Tidewater’s revenue climbed 84% to $147 million against the comparable quarter in the prior year. Its adjusted EBITDA increased by 48% — 60% on a per-share basis. Distributable cash flow fell 4.5% to $12 million but remained steady on a per-share basis.

Year to date, the small-cap company’s revenue climbed 82% to $426 million year over year. Its adjusted EBITDA increased by 23% to more than $69 million; the growth rate was the same on a per-share basis.

Distributable cash flow fell 1.4% to $39 million but remained steady on a per-share basis. The payout ratio was 25% of distributable cash flow. Total assets increased by 45% to more than $1.5 billion.

Because of the Prince George acquisition, Tidewater’s 2020 net debt to adjusted EBITDA is expected to elevate to 3.9 times compared to Tidewater’s long-term goal of 2.5-3.0 times.

So, the near-term focus will be on integrating the refinery and reducing debt levels. Tidewater estimates the net debt to adjusted EBITDA to reduce to 3.5 times by the end of 2020.

Dividend safety

Tidewater’s cash flow generation should remain stable. It has about 75% of its cash flow from take-or-pay, area-dedication, or long-term commitments. Additionally, its payout ratio is only 25% of distributable cash flow.

Therefore, although we haven’t seen the stock experience a recession yet, I think the company can keep the dividend safe even when a recession hits.

At writing, it offers a yield of 3.7%.

The small-cap stock is still very cheap

The average 12-month price target on the small-cap stock, across 13 analysts, is $1.96, which represents 83% near-term upside potential.

This indicates that the stock is outrageously cheap! Value investors should consider small-cap Tidewater right away.

Stay hungry. Stay Foolish.

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 Kay Ng owns shares of TIDEWATER MIDSTREAM AND INFRAS LTD.

More on Dividend Stocks

The sun sets behind a high voltage telecom tower.
Dividend Stocks

BCE (TSX:BCE): An Impressive 5.75% Yielder

Canada’s top 5G stock deserves top billing in a stock portfolio because of its Dividend Aristocrat status and impressive 5.75%…

Read more »

edit Back view of hugging couple standing with real estate agent in front of house for sale
Dividend Stocks

Why Real Estate Stocks Are a No-Brainer Addition to Your Portfolio

Real estate stocks, especially REITs, offer some distinct advantages over other types of stocks, making them must-have additions to most…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

3 Top TSX Dividend Stocks to Buy for Monthly Passive Income

Top TSX stocks with monthly dividends now trade at cheap prices for investors seeking passive income.

Read more »

Canadian Dollars
Dividend Stocks

Create Free Passive Income and Turn it Into Thousands With 1 TSX Stock

If you can't afford to invest, you can certainly create passive income another way and use that to invest in…

Read more »

Payday ringed on a calendar
Dividend Stocks

Canadian Dividend Investors: 2 ETFs That Pay Monthly Income With High Yields

Dividend ETFs often pay out monthly distributions compared to dividend stocks.

Read more »

think thought consider
Dividend Stocks

2 Stocks I Own and Will Buy More of if They Fall

Stocks tend to go up in the long run. Therefore, buying a basket of diversified stocks on dips should lead…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

2 Oversold TSX Dividend Stocks to Buy for Passive Income

Blue-chip dividend stocks such as Royal Bank of Canada and Manulife Financial pay investors a tasty forward yield.

Read more »

TFSA and coins
Dividend Stocks

TFSA Passive Income: 3 Solid Stocks to Earn $355 Every Month

Looking to earn steady passive income? Here are three solid TSX stocks that can help you earn a worry-free passive…

Read more »