Market analysts say rising interest rates positively impact specific sectors such as financial, consumer staples, and healthcare. They advise investors to avoid sectors that are more sensitive to interest rate movements. However, some companies outside these rate-sensitive sectors, including basic materials, continue attracting investors.
Chemtrade Logistics Income Fund (TSX:CHE.UN) is a case in point. With a long history of monthly distributions, this company produces record financial results amid a challenging environment. With a high dividend yield of 6.97%, the stock is a strong buy for yield-hungry and income-focused investors. The current share price is less than $10 or $8.48.
Chemtrade incurred losses from 2019 to 2021 but experienced a turnaround in 2022. Fast forward to this year, and the financial performance has vastly improved. The $986.48 million company derives revenue from two core business segments that cater to various increases.
Competitive advantages
The Sulphur & Water Chemicals (SWC) business segment manufactures and markets sulphur-based and water treatment products, not to mention specialty chemicals. Chemtrade’s SWC group is one of North America’s largest suppliers of industrial sulphuric acid. Its ultrapure sulphuric acid has a high demand in the electronics and semiconductor manufacturing sector.
Chemtrade’s second business segment and another competitive advantage is Electrochemicals (EC). The EC group manufactures and markets sodium chlorate and chlor-alkali products. It’s also the leading supplier of sodium chlorate in Canada and Brazil, a bleaching agent for the pulp and paper industry. The oil and gas, pulp and paper, steel, and water treatment industries use chlor-alkali products in their processes.
Record results
In the second quarter (Q2) of 2023, net earnings ballooned to $87.3 million, or 150.8% higher than Q2 2022. Because of strong growth in both operating segments, revenue for the quarter reached a record $470 million. For the six months ending June 30, 2023, net earnings grew 266.6% year over year to $166.8 million.
Management said the record start to 2023 indicates the quality and strength of Chemtrade’s diversified product portfolio. Its president and chief executive officer, Scott Rook, said, “We are proud of the results that we generated in the second quarter, including the highest quarterly adjusted EBITDA [earnings before interest, taxes, depreciation, and amortization] in Chemtrade’s history.”
While Rook remains confident in the long-term strength of the business, he expects the second half of 2023 to be softer than the record first half. Still, Rook added that Chemtrade stands out from other chemical companies due to its product portfolio’s compelling combination of defensiveness and growth. The company is also well positioned for the current macroeconomic environment.
Reliable passive income
How could you not like Chemtrade Logistics? Besides the generous dividend offer, the payout frequency is monthly. The company hasn’t missed a dividend payment since 2018, including the losing years. Apart from the anticipated record year in 2023, the organic growth opportunities across the business are enormous.
Chemtrade’s distinct advantage in today’s environment is the limited impact of a typical economic recession on many of its key products. Management expects lower capital growth expenditures ($70 million to $100 million) in 2023 but a record adjusted EBITDA of more than $450 million.
