2 TSX Dividend Stocks Ready for a Massive Payout Boost

Two top-notch contractors could boost their dividend payouts due to their thriving businesses and a potential construction boom.

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Are Canada’s leading contractors in the construction and mining sectors on your watchlists? Aecon Group (TSX:ARE) and North American Construction Group (TSX:NOA), or NACG, might reward investors with a massive payout boost if a construction boom materializes.

The two dividend stocks are among the high flyers in 2023 with more than 40% year-to-date gains compared to the broader market’s +6.35%. Moreover, the business outlook is bright owing to the impressive revenue growth in the first quarter (Q1) of 2023, notwithstanding inflationary pressures.

Positioning for long-term success  

Industry analysts expect Canada’s construction market’s average annual growth rate (AAGR) to be over 2% from 2024 to 2027 from $355.9 million in 2022. They also say that infrastructure projects in the industrial, residential, and commercial sectors would support business growth.

Aecon is one of the prominent names that should be at the front and centre of the industry’s projected growth. The $775.35 million construction and infrastructure development company recognized an operating profit of $5.6 million in Q1 2023 versus the $9.6 operating loss in Q1 2022. Notably, revenue rose 11.5% year over year to $1.1 billion.

Its president and chief executive officer (CEO) Jean-Louis Servranckx said, “With a backlog of $6 billion and recurring revenue programs continuing to see robust demand, driven primarily by the utilities sector, Aecon believes the North American construction market continues to be resilient in the sectors Aecon serves.”

Servranckx added that management is positioning the business for long-term success. Apart from the Construction segment, the projects in the Concessions portfolio are growing. The recurring revenue base from the business mix adds stability and offers growth opportunities.

Aecon’s diverse business model is a competitive advantage. Construction dwells on civil and industrial projects, utilities, nuclear power, and urban transportation solutions. The Concessions side focuses on the international market through public-private partnerships and infrastructure concessions. 

The most recent awards include the $595 million design and construction of improvements to Alberta’s busiest highway (Deerfoot Trail) and a $20 million contract for the construction of improvements at Beddington Trail Northwest and 11th Street Northeast.

Aecon has a history of regular dividend increases. If you invest today, the current share price is $12.60 (+40.24% year to date), and the dividend yield is 5.87%.

Unmatched expertise

NACG is a leading provider of heavy construction and mining services in Western Canada. It also maintains the largest independently owned equipment fleets of any heavy civil construction and mining contractor in the country. The $727.15 million company has over six decades of earthworks experience in hard rock and oil sands mining.

Management believes its extensive project management and design-build construction experience (from consultation to completion) is unmatched in the industry. Moreover, the large and diverse fleet enables NACG to respond quickly and meet ever-changing client requirements.

In the three months that ended March 31, 2023, revenue and net income climbed 37.3% and 61.1% to $242.6 million and $21.85 million compared to the same quarter in 2022. At $26.13 per share (+45.15% year to date), the dividend yield is a modest 1.64%. However, there’s room for dividend growth owing to the low 14.88% payout ratio.

Earn two ways

Investors can earn two ways from Aecon and NACG: price appreciation and dividends. Furthermore, the overall return should be higher in case of a massive payout boost.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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