Should You Buy Chemtrade Stock for its 7% Yield?

Chemtrade (TSX:CHE.UN) stock has long been known as a dividend provider, but it could be a huge return provider as well in the near future.

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Chemtrade Logistics Income Fund (TSX:CHE.UN) has long been known as one of the top stocks in terms of dividends. The company has a history of high yields, and, in fact, 7% might be considered lower for the stock.

So, what’s been going on with Chemtrade stock? Shares are down 13% in the last year alone. That has left some investors wondering whether or not that dividend can be supported. Let’s get right into whether a 7.06% dividend yield is worth the investment in Chemtrade stock today.

Earnings come in

When Chemtrade stock released its most recent earnings report for the third quarter, there was some strong good news. Chemtrade stock reported it would be raising its 2023 guidance to a record annual adjusted earnings before interest, taxes, deprecation, and amortization (EBITDA). That would hit at least $490 million, management stated.

This comes from numerous reasons, many of which have to do with no more pandemic restrictions. The company does not see any supply disruptions, lockdown orders, or anything else that might cause lower production.

During the quarter, adjusted EBITDA rose 3.7% year over year to $142.1 million, which was strong. However, it soon became apparent why there was a focus on no more production issues. Cash flow from operations was down 10% year over year, with revenue down 7% as well by lower prices. However, management believes the commercial initiatives and operating performances will help deliver those record results.

Analysts weigh in

Analysts moderately raised their target prices for Chemtrade stock on the results. Prices for the company’s chemicals have been down but, in more recent times, have been climbing higher. In fact, they should remain elevated for the remainder of 2024, said one analyst.

Therefore, companies involved in the chemical space in general should see improvements in the next year. For Chemtrade specifically, this will come down to higher pricing on caustic operations. It’s now a top pick by many analysts, with a buy recommendation.

This seems to be hinged on the value that Chemtrade provides right now. It holds a strong growth story that’s already on the recovery. New guidance is now held in the potential share price, with the opportunity for growth through 2025 and buybacks as well.

Grab the dividend now!

So, in answer to that question, yes, Chemtrade stock looks like a buy with that dividend yield at 7.06% as of writing. The company continues to trade down based on the most recent performance. But with signs of recovery already underway and management confident about the future, it’s a great time to consider the stock.

In fact, let’s look at what could happen should Chemtrade stock hit 52-week highs. If you invested $2,000, here is what that could turn into, considering both returns and dividends for passive income.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCYPORTFOLIO TOTAL
CHE.UN – now$8.43237$0.60$142.20monthly$2,000
CHE.UN – highs$10.19237$0.60$142.20monthly$2,415.03

There you have it. Chemtrade stock could provide returns of $415.03 to reach 52-week highs, with $142.20 coming in through dividends. That’s total passive income of $557.23! So, consider it while looking for passive income on the TSX today.

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 Amy Legate-Wolfe 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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