Investing in cheap or undervalued dividend stocks can help you earn a steady stream of passive income as well as benefit from capital gains over time. Here is one such high-yield dividend stock in Aecon Group (TSX:ARE), which is a screaming bargain right now.
Is Aecon a good stock to buy?
Aecon Group provides construction and infrastructure development services to private and public sector clients in the U.S., Canada, and other international markets. It has two primary business segments, which include cConstruction and Concessions.
The Construction segment focuses on civil infrastructure, urban transportation systems, nuclear power infrastructure, and utility infrastructure. Comparatively, the Concessions segment is engaged in the building, construction, financing, and operation of projects via public-private partnerships and contract structures.
Valued at a market cap of $675 million, shares of Aecon Group are down 53% from all-time highs, allowing you to buy the dip and enjoy a high dividend yield.
Aecon Group has significant levels of infrastructure investments across its focus areas. Positive population and immigration dynamics in Canada are also helping drive demand, while the transition toward net zero carbon emissions is creating opportunities in private and public sectors.
Aecon Group has a diversified portfolio of projects across geographies, sectors, and contract sizes in the construction segment. For instance, around 900 projects are underway, with an average contract size of $25 million.
With a growing number of projects in the Concessions portfolio, Aecon Group has a recurring revenue base, adding further stability and growth opportunity to the business mix.
It ended the second quarter (Q2) of 2023 with 53% of sales from non-fixed price contracts compared to 48% in the year-ago period, providing it with a stable stream of cash flows. Aecon Group is also the first Canadian company to adopt a sustainability-linked credit facility tied to ESG (environmental, social, and governance) objectives. Focused on sustainability, it has a 30% greenhouse gas reduction target on an intensity basis by 2030, with a net zero target by 2050.
Around 79% of the company’s projects are tied to sustainability projects, with seven acquisitions in the energy transition segment.
Is Aecon Group stock undervalued?
Aecon Group is priced at 0.14 times sales and 10 times forward earnings, which is quite cheap given its high dividend yield. It pays shareholders an annual dividend of $0.74 per share, indicating a yield of 6.9%. These payouts have risen at an annual rate of 9% in the past decade.
Analysts tracking the stock expect Aecon Group to gain over 25% in the next 12 months. After adjusting for dividends, total returns will be closer to 31%.
The company ended the June quarter with a backlog of $6.8 billion and recurring sales of over $1 billion, providing investors with revenue visibility.
Aecon Group has a proven capability to develop, construct, finance, and operate a diverse set of infrastructure solutions. It is an experienced partner to international construction firms, governments, and financial institutions across verticals.
Aecon estimates federal government programs to invest over $220 billion in infrastructure programs making Aecon stock a top bet right now. Its cheap valuation multiples and upside potential should allow Aecon to outpace the broader markets over time.
