Times are hard because the cost of living keeps rising due to stubborn inflation. While Canada’s headline inflation fell 3.8% last month, grocery prices are still rising slower. Now is the time to look for tax-free investment income opportunities to preserve purchasing power.
The Tax-Free Savings Account (TFSA) can provide accountholders with inflation-fighting power through the power of compound interest. Also, you can fortify your stock portfolio with Aecon Group (TSX: ARE). This high-yield but undervalued dividend stock has a long growth runway and sustainable future.
At $10.41 per share (+19.51% year to date), the dividend yield is 7.11%. You’d have a new best friend in your tax-advantaged account.
Impactful projects
Aecon plays a vital role in Canada’s engineering and construction industry. The $642.25 million company builds impactful infrastructure projects, including roads and transit systems, communication networks, water supply, and airports or ports facilitating trade and travel.
The Construction and Concessions segments are diversified and dynamic in scope, with varying sizes, from mega-integrated projects to medium-sized jobs as well as local work. Aecon’s Construction segment is the contractor to public entities and Public-Private Partnership (P3s) projects in Canada and abroad. It covers the civil, industrial, nuclear, transportation, urban, and utility sectors.
However, the Concessions segment develops, designs, finances, builds, and operates construction projects. Its primary focus is on domestic and international P3 projects. The segment also offers private finance solutions, investment and management services, operations and maintenance. Aecon’s development teams can participate in the projects.
Investment takeaway
Aecon is a rock-solid choice for TFSA investors because of its diverse and resilient business model. The Construction segment boasts projects by geography, sector, contract size, and construction type, while the projects in the Concession portfolio are growing. According to management, the timeline for the combined projects is from 2023 to 2054.
Aecon Concessions sold its 49.9% stake in the Bermuda International Airport for US$120 million but will retain the management contract for the airport.
Financial performance and project wins
Aecon’s impressive financial performance in 2023 indicates robust public and private end-market demand. In the 12 months that ended June 30, 2023, revenue increased 11% to $4.86 billion versus the same period in 2022. The profit jumped 173% year over year to $73 million.
In the second quarter (Q2) of 2023, profit reached $28.2 million compared to the $6.4 million net loss in Q2 2022 — a 541% turnaround. Demand for Aecon’s services across Canada continues to be strong. During the first six months of 2023, Aecon secured several projects that padded its backlog, including the Deerfoot Trail Improvements project in Calgary.
Aecon is well positioned to achieve substantial revenue growth in the next few years due to robust demand, new project wins, a $6.9 billion backlog (as of June 30, 2023), and recurring revenue programs.
TFSA material
TFSA investors should include Aecon in their watchlists, if not buy lists. The construction and infrastructure development company hasn’t missed a quarterly dividend payment since December 2007. With a favourable demand environment and dividend track record, Aecon deserves best friend status in a TFSA.
