The TSX was highly volatile for most of 2023 due to stubborn inflation, rising rates, and supply chain disruptions. Surprisingly, Canada’s primary stock market finished the year with an 8.12% gain from the starting point. Tech stocks contributed much of the gains, with some contributions from individual stocks in other sectors.
Inflation and interest rates might come down, although geopolitical tensions, trade conflicts, and technology advancements could destabilize the market in 2024. Still, despite the weak start, some market analysts predict a bullish year for stocks. As of this writing, the TSX is up by less than 1% (+0.80%).
Tech stocks could dominate again this year because of artificial intelligence (AI). But if you’re a dividend investor, Aecon Group (TSX:ARE) in the engineering and construction industry stands out and should be the top pick if you need immediate income. At $13.84 per share, the industrial stock pays a 5.35% dividend. Besides the juicy payout, the industrial stock delivered a 52% market-beating return last year.
Diversified business model; humongous profit
Aecon displayed resiliency and reported business growth amid economic uncertainties. The $854.99 million firm provides construction and infrastructure development services to clients in the private and public sectors in Canada, the U.S., and some other countries.
In the first three quarters of 2023, revenue increased 2% to $3.5 billion versus the same period in 2022. Notably, profit soared 1,322% year over year to $152.2 million. The backlog reached $6,2 billion at the end of the third quarter (Q3) of 2023. Its president and chief executive officer, Jean-Louis Servranckx, said the backlog and recurring revenue programs continue to see robust demand.
Two core segments, Construction and Concessions, form Aecon’s diverse business model. Besides sectors such as civil (31%), industrial (22%), and utilities (19%), the construction segment is into nuclear power (15%) and urban transportation (13%). The concessions side takes on projects like airports, bridges, railways, and light rail transit systems.
Aecon should have no problems sustaining the dividends. The payout ratio is low (32.89%), and Aecon hasn’t missed a quarterly payment since March 2014.
Legacy, long-term projects
Aecon enters public-private partnerships (P3), looks for strategic partners and does project development, project financing, and operations & maintenance. The project timeline in the construction and concession segments is from 2023 to 2054.
Management sees growth opportunities in Canada’s transportation & transit P3s, energy storage, indigenous partnerships, energy storage, renewable energy, indigenous partnerships, international airports, and utilities.
Last week, ONxpress, the consortium formed by Aecon with FCC Construcción S.A., Deutsche Bahn International Operations and Alstom, was named GO Transit system’s partner. The operations and maintenance work will commence in January 2025 and run for 23 years.
In December 2023, Dominion Energy awarded Aecon a US$200 contract to replace condensers and feedwater heaters at the North Anna Power Station in Mineral, Virginia. In the same month, Aecon secured a $290 million design-build contract with the Ontario government for the Elevated Gateway in Toronto.
Stable investment
Aecon, a sustainable infrastructure company, can produce immediate income and is also a stable long-term investment. The business benefits from the strong public and private end-market demand, while the legacy, long-term projects provide revenue and income stability.
