Choosing the right high-yield dividend stock in an inflationary environment is challenging. Canadian banks are staples in any portfolio, but an infrastructure stock should be a no-brainer buy if you want to diversify to spread the risks.
My top pick in 2023 is Aecon Group (TSX:ARE) in the industrial sector. Besides outperforming big bank stocks and the broader market, the opportunities ahead ensure a huge upside and moderate risk. At $11.16 per share, my top-of-mind choice has a year-to-date gain of 26.04% and pays a mouth-watering 6.81% dividend.
A $16,740 position (1,500 shares) will produce $1,139.99 annually, or $285 in passive income quarterly. If I don’t collect dividend earnings and instead reinvest them, my money will compound to $32,886.72 in 10 years, $46,094.93 in 15 years, and $64,607.92 in 20 years. The best part is that Aecon has never missed a quarterly dividend payment since November 2007.
Revenue and profit generators
The $691.7 million company provides construction and infrastructure development services to private and public sector clients in Canada, the United States, and other international markets. It boasts a diversified, resilient business model with two operating segments contributing to revenues and profits.
Aecon’s core business segments are Construction and Concessions. The former focuses on markets such as civil infrastructure, conventional industrial infrastructure, nuclear power infrastructure, urban transportation systems, and utility infrastructure.
The Concessions develop, build, construct, finance, and operate construction projects through public-private partnership (P3) arrangements or contracts. Besides business stability from major projects and concessions through 2030, Aecon has a solid backlog and growing recurring revenue.
Aecon thrives because of strong public and private end-market demand. In North America’s private sector, it will capitalize on the increasing investments in electric & gas utility distributions, telecommunications, and energy transition. The Concession side should provide long-term cash flow opportunities and allow Aecon to monetize interests for future development projects.
For Concessions again, Aecon will strengthen its public-private partnership capabilities and pursue growth opportunities in transportation & transit, renewable energy & energy storage, utilities, and indigenous partnerships.
Profitability
In the first half of 2023, revenue increased 7.8% year over year to $2.27 billion, while profit reached $18.8 million compared to a net loss of $23.8 million during the same period in 2022. For the second quarter (Q2) of 2023, net profit was $28.2 million versus the $6.4 million net loss in Q2 2022.
Aecon Group’s president and chief executive officer Jean-Louis Servranckx said, “With significant new contract awards in the second quarter, backlog of $6.9 billion and recurring revenue programs continuing to see robust demand, Aecon is well-positioned to achieve further revenue growth over the next few years.”
As of June 30, 2023, Aecon reported a backlog of $6.85 billion. It also booked $2 billion of new contract awards in Q2 2023, or nearly double that from a year ago. The business outlook is bright for both segments. Construction enjoys strong demand, growing recurring revenue programs, and a diverse backlog. Aecon will add more opportunities to the existing Concessions portfolio.
Safety net
Aecon is a defensive asset and safety net in the volatile local and global economic environment. The visible revenue growth in the coming years gives me the confidence to invest in the infrastructure stock.
